Tag Archives: credit card fees

Yes, Your Credit Card Terms Can & Will Change

A recent email from Barb reminded me of something we haven’t talked about for some time.

Her husband received a call from TD advising them that their credit card would now be charged an annual fee. Apparently, that should have been the case all along, but didn’t get charged for the first two years.

Needless to say, she was a little choked and thought they should be honouring the terms that they originally signed up for. She’s right, but she’s also totally wrong.

Card issuers don’t have any morals – they have profit margins to meet. She also, mistakenly thought that her business mattered to the card issuer – it doesn’t. They have a million plus accounts and one person being mad or leaving isn’t going to register on their financial results.

Annual fees are pure profit and it’s something they wish they could charge every cardholder for an ever-increasing amount each year. It’s kind of like bank service charge in their world.

But before you tell them to stuff it, you need to stop and think. If you do, your credit score will go down, and that will impact your line of credit rate and other borrowing. It’s not hard to understand if you read the credit score chapter in the Money Tools book, because your score impacts so much of your life.

If you have one or two credit cards, first apply for another card that’s more to your liking, lower rate, better perks, lower or no annual fee. That card issuer looks at your credit report with this other card you want to cancel still in existence. Once it arrives, then call the card issuer to cancel the one you want to get rid of.

Your credit score factors in the length of time you’ve had your cards. So if you’ve had one card for 10 years, and the other for two years, the average time is six years. If you cancel the 10-year card first, the average time drops to only two and that’ll drop your score. That’s also the reason to often consider keeping your 10-year card even if you don’t want to use it anymore…it has a big positive impact on your credit score. You can cut it up so you’re not tempted to use it, but don’t call to cancel it. Now, that’s assuming it doesn’t have an annual fee. If it does, take the small credit score drop for the big savings on the annual fees!

Prepaid Cards – The Good and the Bad

Last January, I asked a credit card insider where the growth and focus of their company would be over the next couple of years. Without hesitation, the person told me that it would be in the area of prepaid credit cards.

With recent, and much stronger, consumer and financial legislations, more and more of the emphasis of credit card issuers will be on marketing prepaid reloadable debit or credit cards. For the last few years, we have become used to seeing them marketed as Christmas gift cards, but that will now be year-round.

These cards will be the main tool which banks will use to strengthen their relationship with younger people, and especially students, who cannot obtain a credit card on their own. The bank marketing will also focus on lower-income people, anyone with big credit problems, and those who have no current bank relationship. On the surface, prepaid cards can seem like a good idea, but be careful, because they are heavy on fees, and light on consumer protection.

Prepaid cards do not cover you for the same fraud protection as credit cards. If your card is lost, stolen, or fraudulently used, you are liable for the loss. Each issuer has voluntary guidelines and protections that you’ll need to understand before you get the card, and before something unforeseen happens.

Plus, you are not building, or rebuilding, credit with a prepaid card. You are paying the money up front and receive a plastic card to use up to the amount you have already given them. The issuer is not extending credit to you, so you will not have your activities reported to the credit bureau.

The good news is that provincial legislation, from BC to Ontario at least, now prevents cards from having an expiry date, or a monthly activity fee.

With a wide variety of other fees, here are some of the questions you need to get answered before choosing a card:

Activation fee amount: Most cards charge to get the card set up and activated. The Walmart Money card is one of the cheapest, but others can charge up to $30.

Cash advance fee: All cards will charge you a fee to get a cash advance from an ATM. As a result, you need to commit to never using the card to obtain cash. But do ask, because some have one or two free withdrawals.

Statement fee: All cards will let you check your balance online, but most will charge you for a mailed statement.

Balance inquiry fee: If you can’t wait until you can get online, almost all cards will charge you for a balance inquiry through an ATM. It’ll be their fee plus whatever the ATM provider charges on top of that.

Inactivity fees: The rule of thumb is that these won’t get charged for at least a year or more. If you are frequently using the card, it may not matter as much as someone who only intends to use the card occasionally.

Life Does Go On Without Credit Cards

A year or so ago we talked about the drive of credit card companies to hook college and university students on their cards, and to have them broke as soon as possible. It’s their training ground for life, and they pay literally tens of millions of dollars to colleges to be able to buy their marketing lists and sell their products on campus.

But here’s something different and quite surprising: A couple of weeks ago the University of Alberta announced that they were going to be discontinuing taking credit cards for tuition fees. The U of A made the move, according to their statements, to be more fiscally responsible. In other words – to save the huge merchant fees they pay to Visa and MasterCard. Want to take a guess of how much the U of A pays in merchant fees a year? $1.3 million! Now think about all those retailers and what they pay because you know that’s included in the prices they charge.

Their hands aren’t totally clean as they have previously done work with MBNA and have sold their student lists to credit card companies. But I’m prepared to forgive and forget, because this is just great news and Phyllis Clark, the V.P. of Finance is absolutely my hero of the month!

Sure, they did it for selfish reason, but I won’t look a gift horse in the mouth: A major institution in Canada is actually going to stop contributing to having students go broke! THAT is great news. Education should include not contributing to the financial ruin of their students – simple as that.

And a note to the person from the student union whaling, whining and complaining how awful this was, and that most students don’t have any other payment options: Think before talking!

Other payment options include: Debit cards, cash (remember what that is), cheques or money orders. If he was alluding to the fact that students don’t have the money, the comment is even more ridiculous: Think part-time job, think saving BEFORE deciding to enroll for the next year, think budgeting or using student loans for course fees – no, not all students use the money for what it was intended…I know that’s shocking.

If that spokesperson believes huge student credit card debt is a great idea – go get a cash advance off your card. It’s THE best way to go broke but surely your job isn’t to help students get ripped charging stuff at 19% is it?
So congratulations to the U of A, and I hope they become the first of many to set this example in weaning student off credit cards and setting a financially responsible example! Now if they could just take the next step and implement a policy that they will not take money from credit card companies, sell their student lists or help them with promotions on campus…