Credit Card Guide

First, you need to consider how you plan to use your credit card. Will it be in your wallet for emergencies only? Do you plan to use it often and if so will you pay off the amount owing in full each month or carry over the debt? Maybe you have some existing debt that you need to pay off and you’re looking for the best card that will allow you to do that.

Here are a few guidelines based on different spending habits:

Emergencies only – Look for a card with a low annual interest rate and no fees. If it's just going to be taking up space in your wallet you don't want to be paying a fee for it. Also, if something does happen and you need to make a large charge you want to make sure you're not paying a ridiculous amount in interest while you pay it off.

Plan to spend and pay it off – If you can pay off your balance on time every month, then a card with a bit of a higher interest rate won't really affect you. You want a card that will reward you for spending on your card and then paying it off. Look for a card with reward benefits that you like (see: How do I find the right rewards card for me?)

Plan to spend but can't pay it all off – You need a card with a reasonable annual interest rate. If you plan on spending a lot, look for one that also offers some kind of reward benefits. A cash back rewards card could be a good option - you could use the rewards to help pay off your outstanding balance. (Also see: How can I make sure I'm paying the least amount of interest?)

Need to get existing debt under control – Transfer your debt to a card that offers a low interest rate on balance transfers. You may even be able to find a card that will offer a specific sign-up bonus of 0% interest on balance transfers for the first few months.

You will typically see three different interest rates quoted in the terms and conditions of your credit card:

1. Purchase interest rate – this is the annual interest rate you will be charged on new purchases
2. Interest on balance transfers – this is the annual interest rate changed on any outstanding debt that you transfer to your new credit card.
3. Interest on cash advances – This is the annual interest rate you will be charged on any cash that you take out against your card. This fee is typically higher than the purchase interest rate.

If you pay off your credit card bill in full before the due date, you will not be charged any interest. In other words, if you make a purchase on the 1st of the month and your payment isn't due until the end of the month, you don't have to pay any interest on the money that you borrowed at the beginning of the month as long as you pay it off in full before the due date. This is know as the grace period. If you don't pay it off, you will be charged interest from the date you made the purchase.

The interest that you pay on purchases is quoted as an annual rate. So to get the daily interest rate you should divide your annual rate by 365. Your credit card company will use this daily rate to charge interest on your outstanding balance each day, which is then added up at the end of the month and included on your bill.

The most obvious answer to this is to pay off the full amount owing on time, that way you wont be charged any interest. But here are a few other tricks to make sure you're saving money on interest:

• Set up an automatic payment from your bank account to your credit card just incase you forget to pay.
• Make your payment a few days before it is due, so if the due date falls on a Sunday or holiday there won't be a delay.

Visit our credit card top tips for more ideas on how to save money on interest.

When you apply for a credit card the credit card company will run a check on your credit score to see if you should be approved for the credit. Your credit score is a snap-shot of your credit history (typically the last 5-6 years) and can provide a measure of how likely you are to pay your bills.

If a lot of credit checks are being run on you at once, then the credit company may start to think that you are in desperate need of credit, which could negatively affect your rating. So make sure you limit the number of credit request at once, i.e. don't apply for multiple credit cards at once, or don't apply for a credit card at the same time as you are trying to get preapproved for a mortgage or register for a new cell phone plan.

Check out our blog for more information on how to manage your credit score.

The issuer is responsible for disclosing the main conditions of the credit card in an information box. This should include the following details:

• The credit limit
• Annual interest rate changes (on purchases, cash advances and balance transfers) and factors that would cause the interest rate to increase (i.e. late payments and going over your credit limit).
• Interest-free grace period
• How the interest is charged
• Minimum payment required
• Annual fees
• Any other fees (i.e. admin fees for additional statements and balance transfers, etc)

You should also receive a contract from the issuer including the full terms and conditions for using the credit card. After that you will receive a monthly statement from the issuer with details about your purchases, the total amount owing, the minimum amount due and how long it would take you to pay off the balance if you just made the min payments.

In most cases, the issuer is required by law to inform you of any changes to your card in writing 30 days prior to the changes taking effect.

This is the length of time when you will not be charged interest. For example, if you make a purchase on your credit card at the beginning of the month and then pay it off in full before the due date, you will not be charged interest on your purchase. So essentially, you can borrow money at the beginning of the month and pay it back at the end of the month without incurring interest charges because you are within the Grace Period.

A recent change to the credit card guidelines state that the grace period must be a minimum of 21 days if you pay off your balance in full by the due date.

The Grace Period will be voided if you do not pay your balance in full before the due date. The Grace Period DOES NOT apply to cash advanced and balance transfers.

Grace periods from credit unions and on store cards my be shorter because these companies are not required to adhere to the same laws.

There are hundreds of reward cards available to consumers with benefits ranging from cash back, to AirMiles, to store points at some of your favorite retail outlets. Consider the below when looking for the right card for you:

1. First decide which reward will provide the most value to you. If you're a frequent traveler, then go with a card that offers travel miles. If you spend a lot of time in your car, perhaps a card that offers discounts on gas might be better for you. Or maybe you value flexibility when it comes to rewards, so a cash back plan would be the perfect option for you.
2. After you’ve decided on the best type of reward, then you need to consider whether or not you’d be happy paying an annual fee to get more reward points for each dollar spent. Typically, the better the rewards the higher the annual fee for the card. But there cards out there that offer rewards with no annual fee.
3. In order to decide if it makes sense to pay an annual fee for the card, you need to estimate how much money you plan on spending on your card each year.
4. Do some calculations to figure out how many points you would accumulate based on your yearly spend. Don't forget to include any bonus points that you get for signing up and if you get points for renewing each year.
5. Finally you need to figure out how many points are needed to redeem worth of rewards.
6. If the reward dollars minus your annual fee is positive, then it's probably worth getting the card.

Let's look at Capital One's Aspire World Mastercard as an example:

• 2 points for every spent (no store restrictions)
• 35,000 bonus reward points when you first sign up
• 10,000 bonus reward points on your anniversary date every year
• Annual fee = 0
• 100 points = in travel (min 15,000 points to redeem)

So in this example, it wouldn't make much sense to have this card after year 1 if your monthly spend was only 0.

Note: The above example assumes that the credit card balance is paid in full every month so no interest charges are incurred. Some cards suggest a minimum annual income in order to get approved. See the specific terms and conditions for each credit card you apply for.

Some people don't do well with access to a lot of credit, they just end up using it and racking up their debt. If you're one of these people, one credit card is probably a smart choice. However, if you can manage your debt responsibly you should consider having a few different cards in your wallet.

If you have a few different credit card needs, then it makes sense to carry the cards that best match those needs. For example, you may want one credit card with a low interest rate for emergencies and another card with great rewards for your everyday purchases.

Multiple cards used wisely can also help to build your credit score. Having a lot of activity on old credit cards with a good payment history reflects positively on your credit score.

If your credit card was lost or stolen you should contact your issuer immediately to report the incident. Most card providers have a zero-liability policy, so in most cases you wont be charged for purchases that you didn't make. Check your credit card terms and conditions for more details.

The credit card companies make money off of you by charging you interest on the money that you borrow that you don't pay back before the due date. Issuers typically require a very low minimum monthly payment, mainly to entice consumers to only pay the minimum, so the issuer can then charge interest on the outstanding balance.

By only paying the minimum amount owing, it could take you a very long time to pay off your balance because the interest will continue to pile up.

Issuers also make money by charging the vendor a transaction fee on items purchased using a credit card (typically 2-4% of the value purchased).

The government recently made a few changes to their credit card regulations in 2010 The first round of changes came into effect on Jan 1st 2010 and included:

• Card holders must provide consent before the issuer can increase their credit limit.
• Clear communication of card terms and conditions and applicable fees is required

Additional regulations were then added on Sept 1st 2010, including:

• Card issuers have to give borrowers a minimum 21-day grace period
• Customer payments must be put against the highest outstanding interest rates first (or at least proportionally)
• Credit card statements will need to be clearer

Although store credit cards offer enticing sign-up bonuses, these cards can end up costing consumers a lot more in the end. They typically offer much higher interest rates (29% is normal), and shorter grace periods. So if you make a late payment, even if it's only by a day or two, the interest charges could be huge.

These providers are also exempt from following the new government regulations because the store credit card is not issued by federally regulated companies (like the banks), so the onus falls on each province to regulate them.

To cancel your credit card, you need to contact the issuer directly by phone or in writing. After the card has been canceled, you should check your credit report to make sure it no longer appears on your file.

Note: It typically takes 30 days for the issuer to report the change to the credit agency.