Credit Canada

Yippee! My MasterCard credit limit has been extended to $34,400, and I didn't even ask for the increase.

Consider: I can transfer any account balances to my MasterCard for a nominal interest rate of .054767%. Sounds cheap except for the fact it is 19.99% on an annualized basis. I get the same low rate for purchases.

The interest is charged from the date I make the purchase. Just to be clear, if I was maxed out on my credit card, I would be paying $6,876.56 in interest each year. That's about $19 a day. And that's just one credit card.

My American Express Card? The credit limit is $14,000 and the interest rate is 18.25%. My credit limit on my Visa gold card is $21,400 and the interest rate is 19.5%.

Then there's my wife's credit card. She discovered a couple of years ago when applying for a department store credit card that she had no credit history because she was the secondary cardholder on all our accounts.

She was rejected. Now that hurts. So, she applied to Visa and they gave her a $1,500 credit limit. This time I was the secondary cardholder. In no time at all her credit limit climbed to $5,000. And the interest rate? A "very competitive" 19.5% -- competitive at least as far as the credit card companies are concerned.

All told, we have about $75,000 in credit on cards that would cost me close to $15,000 in interest per year if the cards were maxed out. If I was living in the United States, I would probably take that $75,000 and buy five condos with five $15,000 down payments.

While Canadians do not generally use their credit cards to speculate on housing, plenty are in trouble with more mundane purchases.

Vince Gaetano, vice-president of Monster Mortgage, which helps consumers refinance mortgages and consolidate debt, sees people come into his office with three or four credit cards stretched to the limit. "I have a lady I'm dealing with right now who has seven cards and 112,000 bucks outstanding," says Mr. Gaetano.

He says it's easy to keep upping your credit limit because all the systems extending that credit are automated. You make the minimum payment every month and youm get even more credit in return.
"Every eight or nine months they'll extend your limit. You don't have to requalify, they'll just throw you more credit," says Mr. Gaetano. "I have a Visa that was approved for $10,000 in 2002 and my limit right now is $32,000. It's almost comical."

While he doesn't see Canadians using cards to speculate on housing, he sees plenty of people racking up debt to fix their principal residence. "You move into these new homes, they all need curtains, they all need decks, they all need landscaping, furniture," says Mr. Gaetano. "It's a slow hole people dig."

Laurie Campbell, executive director of Credit Canada, says people who get a larger credit limit generally spend to it. "It's insane," she says. "We are given the rope to hang ourselves."

Ms. Campbell says there is nothing to stop you from calling your credit card company and asking to have your limit reduced. "Creditors don't like doing it. They'll tell you if you reduce it now and want to increase it later, it may be difficult," she says. "The bottom line: If you can't control yourself, you should do it."

There's another reason to limit your credit cards. I have $75,000 in potential debt with my cards. Ms. Campbell says my mortgage company will say that credit makes me an extra risk. It doesn't really help my credit rating, she adds.

I'm convinced. I'm cancelling one of those cards and saving the annual fee in the process. Whatever will I do? I'll be down to just less than $50,000 in available credit at 19%.
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Dusty Wallet Every year DW tries to cancel his gold card with a major credit card company. Last year, the call to cancel was made but the credit card company offered up a $150 rebate. The membership is $170 for two cardholders. I stayed. Fast-forward to this year and another $170 annual fee due. This time when I called to cancel I was only offered a $75 rebate. What to do?

* Material reprinted with the express permission of "National Post Company, a CanWest Media Inc. Partnership.