A credit card or a line of credit is credit extended to you in advance by an institution (often a bank or credit union). This credit is available for you to use whenever you need it, as you see fit. These are open credit contracts within the meaning of the Consumer Protection Act.

Terms of payment

At the end of each period, which is usually one month, the financial institution sends you a statement of account if you have used any or all of the credit made available to you.

You can choose to reimburse only part of your debt, but you must respect the minimum payment amount. Doing so, however, means having to pay credit charges than can be quite high.

When you only make the minimum payment every month, you are actually reimbursing a very small part of your debt.

Cash advances

If you take out a cash advance from your credit card, that is, withdraw an amount of cash from your credit card, credit charges start to accumulate right away. This means you will pay credit charges, even if you reimburse the entire debt on the scheduled due date.

What you are really paying

Your payments include the following amounts:

• the net capital, namely the amount of credit you used; and
• the credit charges, if you do not pay your debt in full before the payment due date.

Credit charges

Credit charges are all of the amounts you have to pay in addition to the amount of credit you used (net capital). They include interest, administration fees, insurance (other than for automobile insurance), rebates, commissions, etc. Check what amount your credit charges add up to. They are often expressed as an annual percentage: the credit rate. Membership or renewal fees may also be added to the credit charges.

Loans taken out from a credit card

A loan of money extended from a credit card is a form of financing offered by a merchant. It is the result of "buy now and pay later" types of promotions. Refer to the page on financing plans for more information on this subject.

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Take the time to shop around and evaluate all of the credit card or line of credit options that are available to you. This will make it easier to find the most suitable product for you.

Choosing a card based on payment habits

If you pay your credit card balance in full every month, no credit charges will be added. In that case, the credit rate may not be an important factor to consider. However, check how much the membership and renewal fees add up to.

If you often carry your balance, you would be better off choosing a card with a lower credit rate, even if you have to pay annual fees. Shop around to compare cards with different credit rates.

Keep in mind that carrying a balance on a credit card is generally one of the most expensive forms of credit. It is therefore best to avoid doing so as much as possible.

Using a department store card

A department store card's credit rate is generally higher than that of a card issued by a financial institution. If a merchant offers you a discount if you use their card to make your purchases, you will pay credit charges if you carry your balance. These charges could end up being higher than the discount you were given.

Take the time to evaluate whether rewards programs are really to your advantage. Do they only apply to that store? If so, do you plan on going back there often enough for the program to be worthwhile? Will you have to pay additional fees?

Also be aware that the simple fact of owning a credit card affects your credit file, even if it remains unused. If you accumulate credit cards, you may have trouble obtaining credit to make a major purchase, such as a car or home.

Exercising caution when faced with various proposals

You may be enticed into getting a credit card when you are in a public place. Such a context is not favourable to making an informed decision. In that situation, you are unable to evaluate other credit products, other credit cards, or properly analyze your needs.

In fact, the law prohibits all merchants and their representatives from offering you a credit card or line of credit in a CEGEP, college, or any other type of educational institution (other than a university). However, they may make such an offer in their place of business if it is located within the educational institution.

Particularities of a line of credit

Credit charges that apply to a line of credit are often lower than those that apply to a credit card with a low interest rate.

You can shop around for a line of credit. The credit rate and various conditions of use vary from one institution to another.

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Some credit card issuers offer low introductory credit rates. These rates often only apply for a limited time.

Find out about the scope and length of the promotional rate:

• Does it apply to a specific type of transaction?
• When will it end?
• What will be the subsequent rate?

If you choose a card because the credit rate is low and there are no annual fees, keep in mind that the issuer can change these conditions at any time by sending you a notice 30 days before the change comes into effect.

A credit limit is a predetermined amount of money you can use. A financial institution considers various factors to determine the maximum amount it will make available to you, such as your income and your reimbursement habits.

Evaluating your ability to pay

For your part, try to limit your credit based on your means. A financial institution may offer you a limit that is much higher than you need.

Determine how much you think you can reimburse every month. This amount should cover your entire balance, not just the minimum payment. Keep in mind that the less you reimburse, the more fees you will pay.

Authorizing a limit increase

Once your credit limit has been established, the financial institution cannot increase it, unless you expressly and clearly ask them to do so.

Information about a credit card or a line of credit must appear in a written contract. This contract must contain certain mandatory information.

A financial institution may not, unless you have clearly asked them to do so in writing:

• issue you a credit card;
• issue a credit card bearing the same number as yours, for example to your spouse.

The institution also may not increase your credit limit, unless you clearly ask them to do so, either verbally or in writing.

Once you have notified a financial institution that you want to cancel your credit card, they cannot renew or replace it.

Credit offers

The law prohibits all merchants and their representatives from offering you a credit card or line of credit in a CEGEP, college, or any other type of educational institution (other than a university). However, they may make such an offer in their place of business if it is located within the educational institution.

Evaluation by a merchant

A merchant may have to evaluate your ability to reimburse the credit applied for before:

• entering into an open credit contract with you;
• increasing your credit limit, as part of an open credit contract.

To find out more, refer to the page titled Evaluating One's Ability to Pay.

Making changes to the contract

If the financial institution wants to increase the card membership, renewal or replacement fees, they must sent you a written notice to that effect at least 30 days before the increase comes into effect.

The institution must also send you a written notice of any increase in the credit rate at least 30 days before the increase comes into effect. However, the institution is not required to send you a notice if the credit contract stipulates that the credit rate may vary.

Taking out insurance may help protect you or your loved ones in case of disability or death.

Check whether the insurance you currently hold is sufficient, or take out additional insurance if need be.

Mandatory insurance

What if the financial institution requires that you take out insurance before entering into the contract?

You are under no obligation to take this insurance with the institution in question. You always have the option of fulfilling this condition with an insurance contract you already hold, or shop for one elsewhere. The institution must clearly indicate this condition in the contract with this statement.