3 Credit Card Products You Should Avoid
Credit card companies try to get you to sign up for secondary products and services, often forms of insurance or new and convenient ways for you to get at your credit and use it.
These services are lucrative for the card issuers, but are not in your best interest.
Here are three credit card products you should avoid:
Credit Alert Monitoring
One regular pitch is for credit alert monitoring that helps protect against identity theft. The service costs upwards of $17.99 per month and includes online access to your credit report and credit score from Equifax Canada.
The service claims to proactively monitor, manage and protect your credit and identity information and can detect early signs of fraudulent activity.
Many credit card issuers offer this service, as do the credit bureaus – Equifax and TransUnion.
Credit alert monitoring is expensive and unnecessary. You can get a free copy of your credit report once a year and you can get instant access to your credit report and credit score online for less than $25.
Balance protection insurance
Another frequently marketed product from credit card issuers is balance protection insurance.
For a cost of 99 cents per $100 of the average daily balance you can protect your credit rating against unexpected job loss or disability.
Related: Best Balance Transfer Credit Cards In Canada
You might willingly agree to add this protection to your credit card thinking that because you pay your balance in full each month you’ll avoid the fee. Not so.
The fee is based on the amount owing on your statement due date, or on your average daily balance, depending on the card issuer.
Balance protection insurance should be avoided. Just like with mortgage life insurance, this product is aggressively marketed to unsuspecting customers.
You’re much better off keeping a small emergency fund and having proper term life insurance and disability insurance.
Access cheques
Most credit card issuers like to send out access cheques hoping you’ll use them to pay off balances from other credit cards or that you’ll find some other use for the cash.
The marketing material I’ve seen suggests you can use the access cheques for:
- Visiting friends and family – create some memories that will last a lifetime.
- Holiday shopping – the people you care about deserve the best.
- Planning a summer getaway – you work hard; treat yourself and your family to a holiday
Sounds like a bad idea. The annual interest rate for access cheque balances is around 19.99%.
Related: Why A Mortgage Payment Vacation Is A Bad Idea
The transaction fee for access cheques is 1% of each transaction amount, with a minimum fee of $7.50.
Final Thoughts
Credit card issuers prey on unsuspecting customers by aggressively promoting products that aren’t in your best interest.
Whether you diligently pay off your credit card or you carry a balance from month-to-month, you should avoid these credit card products at all costs.
If you’ve been misled into buying something like credit alert monitoring or balance protection insurance, call your credit card issuer and cancel it immediately.
- Check out this CBC Marketplace report – Is credit balance insurance worthwhile?
When used responsibly, credit cards are a good financial tool that can help you budget effectively, manage your cash-flow, and earn rewards.
Related: Top Cash Back Credit Cards In Canada
Just make sure you don’t fall into the credit trap. Pay off your balance each month and beware of sales pitches for products you don’t need.
I LOVE those access checks! Yes, they do carry a balance transfer fee (typically 1-3% of amount transferred), but they generally carry 0% interest for a certain period of time. Most offers I have gotten are for a year.
So this is how I’ve used them: I’ve moved higher interest rate student loan balances to the access check. I incur the 3% fee, but that keeps that money from accumulating compounding interest at double digits for the time it is moved to the card. I only transfer the amount I know I can payoff during the time of the 0% balance carry offer time period. That way at the end of the year, my card balance is paid off, I’ve saved interest on student loans, and I have paid off additional loan principal.
I only recommend this if method if you can use it responsibly, but if you can, it has been amazing for debt repayment. At least for me…
FYI, in Canada, you can request as many of the free “consumer disclosures” (aka “credit reports”) as you want. It’s in the USA you only get one per revolving 12-month period.
Requesting the reports in Canada involves making a toll free call to the TWO credit reporting agencies, as follows:
Equifax: (800)465-7166
Transunion: (800)663-9980
Just follow the IVR prompts, enter some personal data (SIN required) and in a week or two you’ll have the report in the mail.
In the USA, the reporting agencies are a bit slimy about it and have set up a website that’s geared to sell you unnecessary services such as the ones you mention in your article. Here’s an article warning about that:
http://creditcardforum.com/blog/annualcreditreport-com-scam-or-legit/
If you’re cautious though, you can avoid the fees and navigate their site to get your free report once a year.
You can only get 1 report from each agency once per year in Canada. In America, it’s a far simpler system regardless of the general “slimy” allegation. In Canada, while I lucked out being able to use TransUnion’s phone system, my partner got denied. Further, Equifax makes it incredibly and unnecessarily inconvenient with their forms and ID requirements. Finally, both companies refuse to give you your score which, regardless of their “it’s proprietary and calculated at the time of a request” claim, it’s STILL personal information and shame on our lax Privacy Commissioner and corporate regulations for allowing these companies to bilk average folks out of personal info.
There’s no limit to how many reports you can request in Canada and using the telephone numbers I posted will avoid having to fill out and mail in any forms.
http://www.fcac-acfc.gc.ca/eng/resources/publications/budgetMoneyMgmt/TSOrderCredit-eng.asp#check
I second Lacy’s comments. I was going to say the same thing but she beat me to it.
These are good suggestions that I have followed, esp the balance protection insurance. And when I read this, I was reminded that one can get a FREE credit report ONCE A YEAR from Equifax.
And the balance protection insurance? Just another way for insurance companies to pad their bottom line.
Great post. I avoid them all 🙂
The products might be great for some but I don’t bother with the frills or “perks”.
Mark