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Credit cards make shopping convenient, especially with paper money on the steady decline. In fact, about 95% of Canadians own at least one credit card and there are over 75 million Visas and Mastercards active nationwide.

However, about 70% of Canadians pay full monthly balances. That means 30% are carrying credit card debt. Plus, many cards have unaffordable costs, which might make you wonder if your credit card company is actually taking advantage or you.

Ways Credit Card Companies Take Advantage Of Consumers

Most credit card companies offer legal products and aren’t out to scam you (not in the conventional sense). Nevertheless, they have many ways of making money off you, like:

The 0% APR

To hook you, some credit cards come with promotions of “0% interest” or low rates for limited periods. Sounds like a decent deal, right? But there are certain conditions that come with these 0% APR offers that can make it more risky than beneficial.

Here’s how it works:

Here are some aspects of the 0% APR that can make your situation more expensive and the credit card companies more profitable:

  • Many companies will move your payment date to later in the month. So, early payments won’t count toward the following billing cycle, which may lead to a late penalty and extra interest. 
  • If payment is “late”, you’ll lose your introductory rate. While you can negotiate with your provider and possibly get your fee removed and 0% rate restored, they’ll still charge you the interest. 
  • If you can’t afford your current card, the company may offer to transfer your balance to one with a better rate. Unfortunately, they’ll charge a balance transfer fee that offsets the interest you saved.
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Deferred Interest  

Some credit cards come with periods where interest is “deferred” for several months. Similar to interest-free credit cards, this theoretically means that you’ll only pay your normal rate when your grace period ends. However, this isn’t always the case. There are certain conditions you must meet in order to enjoy the benefits of this deferred interest offer. If you fail to meet them, then you’ll be on the hook for all the interest you accrued during the interest deferral period.

Here’s how it works:

  • To avoid interest, you have to pay full balances. If there’s a single dollar of unpaid debt when your deferral period ends, the provider may charge you retroactive interest for each month of the term, along with your balance.
  • You mistake an “interest-deferred” card for an “interest-free” one. If you don’t read your contract properly, you might wind up paying all the interest you accumulated when your deferral period ends, instead of having it waived.

Rewards System

Credit card companies can also catch your eye with rewards cards, which have various benefits. Financial institutions are particularly good at pushing these cards on their clients. Sadly, those benefits may not be worth it.

Find out if credit card rewards are worth it.

Here’s how it works:

Because some rewards cards come with restrictions, your rewards may not be as valuable as advertised:

  • Point Limitations – Your points may not be available until you meet the conditions, such as surpassing a minimum monthly spending limit, possessing a specific bank account, or shopping at various locations.
  • Travel Restrictions – Some travel rewards cards seem like no-brainers until you realize your options are limited by specific distances and locations, carrier surcharges, blackout periods, and zero-cancellation policies.   
  • Expirations – Although many rewards cards allow you to accumulate points and cash-back dollars throughout the years, others require you to use your benefits within a designated period to avoid losing them.
  • Redemption Rules – Credit card companies are also good at making their products seem easy but that’s not always the case. Once again, you may have to abide by strict conditions to redeem rewards.

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Lower Credit Limits

Most credit card companies are allowed to lower your credit limit for whatever reason. Generally, it’s due to low usage, a high balance, or too many late payments. 

Here’s how it work:

  • A lower credit limit can result in a higher credit utilization ratio. Using up more than 30% of your available limit is not a good financial habit to have and can be damaging to a credit score. If your credit limit is on the low side, it can be hard to only use 30% of it. Often times a higher limit can be beneficial, just make sure you don’t rack up too much debt. 

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Credit Card Fees

As mentioned, some credit cards come with hefty fees for late payments and balance transfers. While such fees might seem reasonable at first, they can add up quickly and increase your monthly balances. The balance transfer, in particular, can totally offset the savings from using a balance transfer.

Here’s how it works:

Due to all the fees charged by these credit card companies, the benefits you gain from owning a credit card can decrease in value. When opting for a certain credit card offer, but sure to consider all charges including:

  • Overdrawn Account – Don’t forget, every card has a specific credit limit and going over it can lead to further penalties.
  • Administrative Costs – Most card companies tack on fees for whatever administrative purposes they can drum up, such as documentation.
  • Activation Fees – Some credit cards come with annual fees of more than $100. This is common with higher tier and rewards cards. 

Don’t Get Taken Advantage Of By Your Credit Card Company

Before you buy any type of credit card, read the terms and conditions carefully to find out every cost that could come your way after you start spending. Remember, while credit card companies offer useful products, they aren’t looking out for your best interests.   

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

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