Credit cards offer many advantages. There is the convenience of being able to buy needed items now and the security of not having to carry cash. You also receive fraud protection and in some cases rewards for making purchases.
They serve as a form of security that you can use to do everything from rent a car to book a hotel room. And they can be invaluable if you run into an emergency that requires fast access to cash, like having your car break down far from home. What's more, as long as you pay your balance off in full every month, you can buy goods and services today, and not pay for them until the due date on your next statement. This means you can use them for an interest-free loan for a set period. If you don't pay your card balance in full each month, you'll pay interest on that loan.
The best way to maximize the benefits of credit cards is to understand your financial lifestyle — your money needs and wants. Canadians have a vast array of choices when it comes to selecting a credit card that's right for them. More than 600 institutions (mostly banks, credit unions and caisses populaires) issue credit cards and offer a wide variety of benefits, interest rates and fees. According the Canadian Bankers Association, as of 2010, there were more than 71.3 million Bank-issued credit cards in use across Canada. Once you determine how you'll use a credit card, it's important to understand all of the card's features including:
- Annual Percentage Rates (APRs) and whether rates are fixed or variable
- Annual, late and over-limit fees
- Credit limit on account
- Grace periods before interest begins accruing
- Rewards including airline miles or cash back
Some credit card issuers offer free, personalized and automatic alert messages to your phone and email to help you keep track of:
- Available credit
- Payment due dates
- Payment histories
- Purchase activity
Understand Your Rights
Credit cardholders are entitled to protections:
- Zero liability means you are not responsible for fraudulent charges when you report them promptly.
- In some cases, you have the right to dispute purchases with merchants for unsatisfactory products or services.
Follow the 20-10 Rule
This general "rule of thumb" helps you understand how much credit you can afford. Credit cards are loans, so avoid borrowing more than you can afford. The 20 refers to: Never borrow more than 20% of your yearly net income (not including your housing or mortgage debt). The 10 refers to: Monthly payments should not exceed 10% of your monthly net income.