11 Deadly Facts Of Credit Cards
In Canada in 2022, the credit card debt stats are expected to remain pretty stagnant, considering the current economic climate. However, Canadians have seen an influx of mortgage loans as it has become a popular option amongst those buying a home.
There are two types of credit cards, namely, VISA and Mastercard.
On the other hand, car loan stats have decreased significantly since their previous peak in 2020, with fewer people opting for this kind of credit option. All in all, these contrasting credit trends are indicative of Canadian citizens financial priorities moving forward and could create interesting market changes in the coming years.
Canadian credit card debt has increased drastically in the past decade; credit cardholders owe an estimated $98 billion across the country, a number that was practically unheard of 10 years ago.
Furthermore, credit card debt surpassed both mortgage and car loan debt in 2019 for the first time ever. Consumers are using credit cards more liberally than before, and this sentiment is reflected in credit scores: credit scores actually hit an all-time high in 2019 as well.
The rise in credit card use hints at a growing sense of confidence among Canadians and points to a more worry-free financial future — but whether this installment spending is sustainable remains to be seen.
As Canadians continue to digitalize banking services and become familiar with such payment methods, it will be interesting to track how credit card usage evolves over the course of the upcoming years.
In Canada in 2022, the credit card debt stats are expected to remain fairly stagnant, considering the current economic climate. However, Canadians have seen an influx of mortgage loans as it has become a popular option amongst those buying a home.
How do credit companies attract consumers to apply for credit card?
Some have an annual fee, and some don’t. Depending upon the card type, you may get eligible for a year annual fee rebate.
Some offer car rental collision loss damages. Some have even named their product as cash-back credit cards, paying you meagre dollars on all other purchases. The same goes for the aeroplane visa infinite card.
The simplycash Preferred Card and Marriott Bonvoy American Express card from American Express says to be the best credit card available today.
It comes with a year annual fee rebate, but you can also earn rewards points every time you use it to make a purchase.
Every dollar spent on net purchases earns two points, and no matter what type of purchase—gas stations, car rentals, and more—you will receive a 1.25% cash-back bonus.
In addition, new cardholders are eligible for an annual interest rate of 19.99% with no annual fees.
It comes with insurance coverage, including purchase security and an extended warranty. It offers common carrier travel accident insurance up to $500 million in out-of-province medical coverage.
Rental collision loss/damage insurance for rental cars, when paid with your visa or MasterCard, is also part of the perks. With all these great benefits, it’s easy to see why more people apply for the simplycash Preferred Card from American Express when they want a top-notch credit card.
Always remember not every creditor reports your payment to credit bureaus; hence it will not help you improve your credit history.
Credit Card Fact #1 - Fine Print
Canadian consumer credit card companies have a habit of hiding the details of their agreements in “fine print” that is almost unreadable.
This isn’t by accident – these companies don’t want consumers to read and understand the conditions they’re signing up for!
We should pay attention to all the details in the credit card agreement.
Companies must ensure Canadian consumers know what they’re getting into before it’s too late. Otherwise, there could be some nasty surprises further down the road.
To learn more about what your credit card companies are reporting to your credit reports, you should regularly check your credit reports at Equifax and Transunion at least annually.
Credit Card Fact #2 - Minimum payment
Credit credit cards often come with a minimum payment requirement, and if you do not pay the balance in full each month you can be exposed to long-term debts that can stretch into infinity.
This issue has become more prominent in recent years, as Canadian consumers are encouraged to take advantage of credit limits, which leads to carrying a balance over instead of living within their means.
To avoid this problematic situation, Canadian households should prioritize eliminating their financial obligations by paying off the balance of their cards or at least making sure they pay more than the required minimum every month.
If you are a homeowner consider mortgage refinancing to consolidate debts.
Credit Card Fact #3 -15 days notice and rate of interest is changed
With interest rate changes occurring so often, it’s important for consumers to be aware of the platforms for their banking and financial services.
Credit card companies such as American Express, Visa, and Mastercard require that their customers be given at least 15 days’ notice when interest rates are scheduled to increase.
This gives people time to understand what interest charges they could potentially incur when making purchases with their credit cards.
Always keep an eye on your monthly credit card statements for details. You will be surprised with what you see on there.
However, interest rates may still change without any prior notice – in which case card issuers must inform their customers within 30 days of the interest rate adjustment. Keep an eye on your credit card fees and interest rates so you can better manage your finances!
Learn more on the best ways for credit repair for free.
Credit Card Fact #4 - Promotional interest rates Offerings
With so many credit card companies out there vying for your business, it’s important to look beyond the interest rate they are advertising. While a lower interest rate may be attractive, read through the fine print carefully when signing up.
Many cards will offer a lower interest rate for a promotional period but then increase the rate above what you were previously paying after that period ends or you miss even one payment.
Other factors, such as card issuer interest charges or multiple credit checks in short succession, can also impact your credit report and credit score. Be aware of all the details before committing to any new card!
Credit Card Fact #5 - Cash Advances
Taking out a cash advance on your credit card can be incredibly costly, as many cards offer cash advances with sky-high interest rates and numerous fees.
In addition to the cash advance fee of 2-3% that most cards charge, there is also often a minimum fee of $5 required – meaning on an advance of $20, 25% of the amount is taken in fees!
Furthermore, most credit cards do not offer the 21-day grace period on cash advances that customers may receive for regular purchases.
This means that even if a customer pays on their due date each month, they will still need to pay daily interest until they clear the cash advance from their balance.
In short, cash advances can be prohibitively expensive for many consumers and should only be considered as a last resort.
Let’s say you take out a $300 cash advance and pay it off when your bill arrives.
Depending on the card,
here’s what you might typically pay.
One month’s interest: $4.50 (based on 18% APR)
Cash advance fee: $6.00 (based on a 2% fee)
Total cost: $10.50
If this had been a $300 purchase on a card with a 21-day grace period, you would have paid NOTHING.
Remember, cash advances are the MOST EXPENSIVE way to use a credit card and should only be used in emergencies!
Credit Card Fact #6 - Minimum Payment
Have you ever stopped to think about why your credit card balance due date keeps coming due, yet you still owe the same amount of money? Chances are it’s due to the minimum payment requirement.
The minimum payment that is due each month may seem low due to annual fees and no interest accrued during any given grace period. This “low” amount is actually a calculated number set by creditors.
It’s so low, in fact, that all payments due go towards repaying interest, resulting in barely any progress being made on reducing the balance due. To get out of debt faster, pay more than the minimum due each month and remind yourself of your goal – financial freedom!
When making contributions to pay off credit card balances, due dates, grace periods, and annual fees are all important factors to consider.
While it may be tempting to make just the minimum due every month on a card with a $2,000 balance and 19% interest rate, this approach will take more than 22 years to pay off the debt and cost nearly $4,800 in interest fees.
Credit Card Fact #7 - Fee for every occasion
Credit card companies may advertise credit cards with low rates and no annual fee, but it’s important to read the summary box of your credit card contract before signing up.
Card facts often highlighted here include various fees, which consumers can sometimes overlook.
There may be over-limit fees imposed by the credit issuers when you exceed credit limits. These fees are usually set at $10 or $15 but could be a percentage in some cases as high as 5%.
If your payment goes $500 over the credit limit and the fee is 5%, you must pay an additional $25 in addition to regular interest charges.
It is important to review the policies set forth by your credit card issuer before using it so that you know exactly what fees to expect in the event of missing a credit card payment due date.
In addition to over-limit fees, credit card companies may also offer foreign transaction fees, late payment fees, cash advance fees and more.
It is thus important for shoppers to consider all aspects of a credit card before making their final decision.
Credit Card Fact #8 - Credit cards make Identity theft easier
Credit cards make identity theft easier. It’s important that you stay up to date on your credit score and investigate any inconsistencies that may arise.
It would help if you also watched out for potential identity theft, such as unauthorized charges, emails or text messages sent from entities pretending to be your credit card company, and mail sent to old addresses.
Consider setting up text message alerts through your credit card provider, so you receive notifications when a transaction is made.
Lastly, make sure you are taking steps to protect your personal information and stay informed of identity theft prevention tips.
Credit Card Fact #9 - Credit cards compounding effect of the interest
Credit card companies use the Average Daily Balance method to calculate interest on your credit cards, but what you may need to know is that some credit cards will include new purchases with those calculations, and others won’t.
You never want to find yourself caught off guard when the bill arrives, so make sure to take a close look at the fine print on any credit card offer to see which way interest will be calculated.
Cards that don’t include new purchases in the calculation will save you much money in interest, so be smart and check for that before signing up for any credit card offers.
Discover more on how you can save money and time with these mortgage renewal tips.
Credit Card Fact #10 - Higher annual fee
At first glance, credit cards may seem like a convenient and efficient way to make purchases. However, these fees can add up quickly, and end up costing you significantly more over time.
Are you tired of paying higher annual fees for your credit card every year? If so, you’re not alone – many Canadian consumers are frustrated.
There are many credit card providers that charge high annual fees, even if you don’t use the card frequently or carry a balance. These fees are often unavoidable, simply because there are a limited number of credit card options available to those who don’t want to pay such high fees.
Thankfully, there are credit cards that offer low or no annual fees. These credit cards give you the convenience of making purchases at any time, without charging you a premium for the service.
So if you’re tired of paying high credit card fees every year, consider switching to a card that offers more competitive annual fees. With lower costs, you can save money over time and enjoy all of the benefits that credit cards offer.
Credit Card Fact #11- Grace Period
Grace periods are a popular credit card feature that allows consumers to make purchases and pay them off over a certain period of time without incurring interest charges.
While this can be a helpful way to manage credit card debt and avoid paying interest, it does have some drawbacks.
For one thing, it can tempt consumers to spend more than they can afford since they don’t have to pay interest right away. Additionally, if you are not able to pay off your credit card balance during the grace period, you could end up with large interest charges.
Therefore, it is important to use credit cards with grace periods carefully, making sure that you are always able to pay off your balance in full each month.
Otherwise, you risk falling into credit card debt and hurting your credit score in the process.
What can we do as your local mortgage advisor?
As an independent Mississauga mortgage broker, I understand that high-interest debt can be difficult to face and overcome. My mortgage services go beyond just the mortgage loan itself – with my expertise, I can provide you with proven ways to reduce your debt using creative mortgage strategies.
Additionally, I am more than happy to provide simple debt-reduction principles and guidance on how to avoid poor credit practices.
With my help, you can break free of any financial burden and build a solid foundation for achieving your aspirations.
Got any questions? connect with us today. I am certain you will be glad you did. Clients love it so will you!