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Choose A Credit Card That Fits Your Lifestyle

The ability to use credit cards wisely is one of the most important financial skills you can learn.  Everyone has different habits when it comes to credit card use and no single approach is best.

When we got married in the early 1970’s, my husband dealt with the Bank of Montreal which introduced the MasterCharge (now Mastercard).  The other big banks issued the Chargex (VISA) card.

Unfortunately for us only about 1% of retailers accepted MasterCharge at that time.  Large department stores such as The Bay (in Canada) and JC Penney (in the U.S.) only accepted their own house-brand charge cards.

Related: How baby boomers changed the banking industry

When I later started my banking career I was issued a VISA card with a $200 limit.  So, with a low credit limit on one card and another card that wasn’t accepted in most places, it was easy to avoid the pitfall of credit card debt.

That didn’t last long.  I guess because we were such nice people, we subsequently were inundated with pre-approved cards in the mail.  In no time we owned several more cards and the limits were increased exponentially on almost a monthly basis.

We still managed them well until we made the mistake of financing our new business with credit cards.  Now that debt is finally paid and we only use credit cards occasionally – for convenience – and pay the balance monthly.

Except for PC points I don’t bother with rewards cards.  Points I had earned on both my Sears and HBC cards dropped off and I won’t use them again.

What is your credit card strategy?

1.  I transfer my balances.  Carol occasionally transfers the balance from her everyday card to one offering 0% interest for 12 months.  That’s like a free loan because it gives her a year to pay down a big purchase without incurring any interest.  She sets up automatic monthly transfers to ensure the full balance is paid before the free interest period ends.

Related: Best balance transfer credit cards

Getting a free loan is a no-brainer.  You’ll take a small hit on your credit score for opening a new card, which will be insignificant if you have good credit.

In Scotland they have equivalent debt relief solutions such as a Trust deed which are similar to the solutions offered in the UK.

Make sure you pay off the balance before the introductory rate expires and becomes exorbitantly higher (what the credit card company wants).  Also, if you’re late with a payment your teaser rate may disappear and the card’s usual interest rate will kick in.

2.  I have cards from all my favourite stores.  Monica has 16 store credit cards that she opened in order to get a discount on her first purchase.  She hasn’t used most of the cards since that first time but she uses several others regularly in order to obtain coupons, free shipping and other enticements the retailers offer only to cardholders.  She always pays her bills in full.

It’s great if you can obtain significant savings by taking out a new credit card when you shop.  Just don’t do it too often as this actually lowers your credit score by a few points each time.

Retail branded cards can be an excellent way to earn discounts and loyalty points from your favourite retailers but be very conscientious about paying them off in time.  These cards have the highest interest rates – up to 30%.

Additionally, if you carry more than about seven cards in all, credit agencies may downgrade your rating even if your payment history is solid.  You look like a spending spree ready to happen.

3.  I charge everything.  Nancy and her husband, Matt, both carry a single credit card linked to the same account.  They charge just about everything, from groceries and car repairs to restaurant tabs and charitable donations.  They pay one big bill in full each month.  Best of all, the card pays them back 1-3% of their purchases.

Related: What’s in your wallet?

You can optimize your rewards credit card by adapting your spending habits.  A float of up to nearly two months (depending on the billing cycle) provides an interest free loan before (full) payment is due.

Don’t get so caught up in rewards that you overspend.  The danger here is that you’ll run up a bill that you can’t pay in full by the due date.  You’ll be charged interest, obliterating the pluses of this strategy.  Bypass rewards card if you are an impulse spender – you don’t need additional incentive to spend.

4.  I don’t use a credit card.  I just stick to cash or debit.  Often people who have dug themselves out of a large debt no longer trust themselves with credit cards.  Grace only uses her debit card as the money comes directly out of her account.  She tracks her spending with her account register.

If you try to exceed your balance your purchase will be declined – a small embarrassment.  Sometimes, accidentally overdrawing your account will result in overdraft fees of $35 or more, or other bounced cheques.

The biggest risk is theft.  A thief could get access to your bank account, and unlike credit cards, there is no liability limit.  If you never use credit cards you forfeit the single best way to improve your credit score even if you have a good track record with fixed monthly payments such as a mortgage or car loan.

How do you choose?

There is a dizzying array of credit card choices and they change all the time:

  • Low interest rates
  • 0% introductory offers
  • No annual fees
  • Cash back
  • Airline miles
  • Merchandise programs, etc, etc.

All have their benefits, but the best perks are the ones you’ll actually use.  If you carry a balance, choose a low interest rate card.  If you’re an occasional card user and pay your monthly balance in full, a card with no annual fee is right for you.  Choose a rewards card you can optimize.

Related: 3 rewards credit cards worth a look today

Identify your spending habits to make a wiser decision and get the product best suited for you.

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10 Comments

  1. Cool Koshur on July 30, 2014 at 3:22 pm

    My credit card strategy is simple: I always pay back in full. I carry no balance as such interest. I wont buy anything if I wont be able to pay in full. I have not paid a single penny in interest in last 15 years of credit card use.
    Second strategy: Cash back is KING… I have credit cards which give me cash back. I pay everything by credit card including home renovations. At the end of year I earn good 300+ bucks in cash back which comes in handy during holiday season.
    Third strategy… I have extended warranty and price protection on my credit card. For all appliances, laptops etc I purchase my warranty is automatically extended for oneadditional year and price protection helps me with price fluctuations during 90 days.

    IMHO, these are GOLDEN rules

    • Barry on July 31, 2014 at 8:43 am

      Great strategies! I use the same methods. A word of caution on the extended warranty and price protection benefits. Check the terms of your particular credit card as there are some exclusions. Many cards don’t offer these benefits on electronics….particularly computers, laptops, tablets and phones.

  2. Anne @ Money Propeller on July 30, 2014 at 7:29 pm

    There are several different cards that I have, but for the most part, we charge absolutely everything to one points card. If I lived somewhere where there were retail cards that matched up to our spending habits, I would probably have those cards. For the most part, retail cards can’t match the premium card that we have, though.

  3. Diane on July 31, 2014 at 4:57 am

    My suggestion to friends who want to use a card but have trouble with knowing what they can afford is a simple system. They have an envelope, when they make a purchase on the card, they put the same amount of cash in the envelope. When the bill comes, they have the envelope with the necessary cash to pay it. This has worked well for some friends that wanted the perks of the PC MasterCard as they do most of their shopping at Zehrs, but found they lacked discipline. They have been doing this now for several years and have gotten many free groceries. The only problem with this strategy is it still requires some discipline (not to borrow from the envelope). Personally, all purchases, including recurring, are put on a cash back card which provides me with a $50 cheque fairly regularly.

  4. tp1943 on July 31, 2014 at 9:05 am

    Can any person advise what affect the cancellation of a credit card has on one’s credit rating/score?

    • Cool Koshur on August 1, 2014 at 7:06 pm

      it is simple. Sum of credit limit of all cards divided by how much spend per month on average. e.g you have 5 credit cards with $1000 limit each and u spend on average $1000 per month. you credit to spending ratio is 5000/1000 = 5. Now if you can cancel a card, you will have 4000/1000 = 4.

      • tp1943 on August 2, 2014 at 6:29 am

        Thanks. So a 4 is not as good as 5? Does it lower your score from say: 780 to 779? Just to be clear.

  5. Cool Koshur on August 3, 2014 at 12:09 pm

    Yes to both questions.

    One tip, ask to raise credit limit on your cards after u have them for a while. This generally doesn’t require new credit check. You are effectively increasing your score.

    Word of caution, your score is impacted when you apply for new credit card. So just don’t apply for new cards.

  6. tp1943 on August 3, 2014 at 12:56 pm

    What happens if you ask the issuer to switch cards, ie” BMO M/C US funds for a BMO M/C Canadian funds? They now charge for the US funds card.

  7. Kiat on August 11, 2014 at 3:10 am

    I just have two cards, one with the best gasoline promotion and one more with the best grocery promotional. I think have too many cards create headache of late payment and you will need to spend a lot of time sorting out the payments.

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