9 Credit Card Secrets Banks Don’t Want You To Know About
Credit card companies are exceptionally good at playing on human weakness. Whether through credit lines we mistake for income, convenience checks we mistake for convenient, or grace periods that have nothing to do with religion, easy money lies behind every door.
That’s why we’ve put together 9 secrets Canadian credit card companies would definitely prefer you did not know. Frankly, if we all used them, there wouldn’t be a credit card industry, because banks would make half the money they make today. So use these bank beating strategies today and start tilting the odds in your favour!
In This Article:
Banks hate customers who pay off their credit cards every month so much they call them “free riders”, “free loaders” or “leeches”. You want to become one of those.
One way to stay ahead of the banks is to set-up Pre-Authorized Debits, where you automatically pay off your credit card bill every month from your checking account. You have a choice to pay the minimum payment, the entire balance or a fixed amount. If you pre-authorize payment of your credit card bill in full every month you’ll never pay interest or get into debt again! It’s a fail safe way to own a credit card – the ultimate bank beater.
2. Negotiate Your Interest Rates
Believe it or not, credit card issuers are so afraid of default, they are more than willing to cut your interest rate if you carry a balance. Canadian issuers routinely cut interest rates by 50% from 19.99% to 11% or lower! Just give them a call, explain your situation and make your request – go ahead, surprise yourself.
3. The Bank is On The Hook For All Fraud Charges
If there’s ever an unauthorized charge on your credit card, your credit card issuer is liable for 100% of the charge – not you. Just call your issuer, identify the unauthorized charge, and it becomes their responsibility to deal with the merchant and investigate the fraud. In the meantime, the issuer will pay off the fraudulent charge.
That’s why credit cards are great to use online, or when travelling. Even if your card gets stolen, hacked, or used by the busboy from a restaurant in China, it’s the issuer’s problem, not yours.
Just make sure not to write your pin down on your credit card, or your bank will have the right not to cover you for the fraud.
4. Put a Block On Your Credit Limit
It’s weird how banks give you a credit limit, but then allow you to exceed the limit, only to charge you a penalty fee of $25-$30 for doing so. Talk about a misnomer.
To avoid the situation, call your credit card issuer and ask for a “block” on your credit limit. This will give you a hard stop at your credit limit (a real limit), so you’ll avoid unwanted penalties and will also be forced to stay in budget!
5. Reduce Your Credit Limit
We all love the flexibility of a large credit limit. The truth is, more people get in trouble because they spend to their limit, which is typically more than what people can afford to pay back in any given month or months.
Don’t be afraid to call your bank and cut your limit, so that it stays within your monthly budget. Obviously, make it large enough so you can pay for things like airline tickets and what not. But other than that, cut it to a range you know you’ll be comfortable with.
6. Transfer Your Balances to 0%
Banks hate when customers “rate surf.” If you have to carry a credit card balance, you’re far better off transferring your balance to a low balance transfer credit card.
All you have to do is apply for the balance transfer card, provide the name of the bank, the credit card number and the amount of the balance you want transferred in your application and the bank takes care of the rest!
When your promotional rate expires after 6, 10 or 12 months, find another card, rinse, wash repeat! While banks may charge a 1%–3% transfer fee, it still beats out the 19.99%–29.99% interest rates most people are paying. You could literally save thousands of dollars.
7. Churn Your Credit Cards
Banks are aggressively pursuing new customers. So much so, that many offer free flights, free hotel nights, and free cash back to entice new customers to apply for their card.
The truth is, you might be better off taking advantage of the sign-up promotion, whether it’s for a ton of Aeroplan Miles or a hefty amount of cash back in the first 6 months, and then once the promotion is over, taking advantage of the next promotion. It’s called credit card churning, and it’s a strategy to substantially increase the amount of travel rewards and cash back you accrue.
8. Get Your Annual Fee Waived
Some of the best credit cards available have an annual fee. But did you know that many banks will waive the annual fee for their best customers? If you’re not a big spender you may find it difficult to get a free pass, but if you spend enough, credit card companies will do almost anything to keep you.
Give your credit card company a call and see what they can do for you. Worst-case scenario you might get a ‘no’, but remember: You miss 100% of the shots you never take!
9. Don’t Carry A Balance To Improve Your Credit Score
There is a misconception that in order to build a credit history, you have to maintain a credit card balance, i.e. go into debt. This is absolutely false.
You can just as easily get an 850 credit score by paying off your credit card balance monthly vs. paying the minimum balance – the only difference is the former is a hell of a lot cheaper. Banks have long let that myth fester because it’s extremely profitable for them – don’t be fooled – you’re always better off paying down your balance sooner rather than later. Always.
Bottom line, credit card companies have made it exceedingly easy for cardholders to get, and stay, in debt. That said, there are plenty of tools to help you beat out the convenience, temptations and traps laid out by the banks. Unlike the casinos, there actually is a way to beat the house, so use them when you can!
There is no bank in the world that calls their customers “leeches” or “free riders”. Banks do in fact like it when their customer pay off their credit cards every month. The bank still gets revenue from those customer accounts through interchange fees and other avenues. When you pay off your balance you are a low risk customer, and banks always love low risk customers.
I would add that “credit card churning” also makes it more difficult to negotiate lower interest rates… the best rates go to long-term customers, not card shoppers, and the banks can see from your bureau whether you rotate cards a lot. So it may not be a good practice for everyone, especially so if your goal is to rebuild your credit, as I think you noted.
I agree with you. Credit card churning is not recommended and only the most stable credit cardholders should try it. It is certainly not a way to outrun debt. But these tips can work under individual circumstances. Your right though, they can be misinterpreted, taken as gospel and relied on too heavily with disastrous consequences for some. For others though, it may need the one thing they need to hear to hear for that one edge they are looking for. Of course though, “buyer beware.” People need to honestly assess their own situation to see if any of these tips are really right for them.
My bank keeps wanting to raise my credit level (but I refuse) and I have $10k on the card, which I always make the above minimum payments on regularly, but they won’t give me a personal loan to pay off the card so I can get a lower interest rate and pay it off faster. They have not refused my loan, but twice I made an application and twice they said the person that took it is no longer there, or delayed answering for months at a time, etc. I have no other debts. It is all because they want to make money off the little people like me so they can give rebates to big companies. It is a shame really. How is a little one supposed to get ahead. I’m happy to pay my debt but be reasonable about it and don’t gouge me. It really is despicable.
The way to beat that kind of stuff is persistence. I know it’s frustrating, but particularly when the only reason you’re not getting a loan is laziness and lack of will on the bank’s part, you have to stay on them about it and repeat yourself until they either give you a loan or deny you for cause. If you don’t do it, no one else will. In the meantime, and even if you don’t get a loan, just put your head down and pay more than the minimum every month. Put the card in the literal freezer, ignore it in terms of spending and just pay off huge chunks, especially if this is your only real debt, as you say.
Banks aren’t necessarily on the hook for fraud, the merchant can be instead, it depends on the nature of the transaction. What is true is that the cardholder is not unless disputed by the merchant and the merchant wins. Rare, but can happen.
Second, rotating cards will not help your rating. Your oldest card is very beneficial to your rating if you have been good with it. In addition, applying for a card is a hard bureau hit and that reflects on the rating. Lots of hard bureau hits is a warning to issuers.
Thanks for coming to give your 2 cents. It’s true that banks aren’t always guaranteed to be liable for fraud, and they make sure that when possible, it’s on the merchant or vendor. Banks have a lot of options to be made whole when it’s a large retailer that gets hacked or defrauded, because usually these large franchises are held to higher standards and punished more for negligence. Banks will be able to take the retailer to court and sue for the fraudulent charges, but also for the costs of issuing new cards and more.
For small businesses that are defrauded, the same applies, but obviously they don’t have the ability to recover as well as a large retailer or brand. However, this only happens to merchants who don’t do the bare minimum to protect cardholders who shop with them. To address your other comment, churning should be done with newer cards because it’s important to the cardholder’s credit that they keep their oldest financial “roots” intact. Their oldest bank accounts and card, even if they aren’t in use, contribute heavily to credit utilization and to one’s credit score.
The hits to your credit that you take for opening a new card are temporary and small compared to what would happen if you canceled a card you’ve had for 10 years. For many, it’s worthwhile to do this with newer cards because the bonuses they get are excellent, and if their credit is already good then it recovers quickly. Churning is definitely not something that should be attempted for low-credit borrowers, however.
This was a great article, thanks! Many people do not know these things about banks and their credit cards.