Managing credit

Credit is a financial tool that can help you reach your goals and conveniently achieve financial flexibility. Explore MBNA’s tips for managing credit to learn how you can manage it responsibly, and find out how to control your credit so it doesn’t control you.

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Expand How can I conveniently manage my credit responsibly?

A good first step to manage your credit responsibly is to manage your money responsibly. Here are some practical tips you can follow -

  • create a budget

    budget

    A budget is a description of a financial plan. It is a list of estimated income and estimated expenditures for a future given period of time.

    to manage your expenses-and stick to it
  • be realistic with your spending
  • keep track of where you spend your money-saving copies of your receipts will help
  • save up over time for large purchases, use your rewards card to earn points and pay off your purchases in full by your next due date
  • keep credit card balances

    balance

    The total amount owed on a credit card account at a given time.

    low-even better, try to pay them off every month
Expand How do I borrow responsibly?

Borrowing responsibly means not taking on more debt than you can handle. Here are a few practical tips:

  • use the 20/10 rule - Never borrow more than 20% of your annual income after taxes and make sure that your monthly payments never exceed 10% of your monthly net income.

  • use your credit for planned purchases that fit into your monthly budget, and avoid making impulse buys for bargain-priced items, since monthly interest charges on outstanding credit card balance should be taken into consideration.

  • it's not wise to finance purchases longer than the lifespan of the product you are buying. Financing a car over a long period is fine but everyday purchases should only be financed for short periods.

  • avoid approaching or reaching your credit limit. Not only will you save on monthly interest charges

    monthly interest charge

    The monthly interest charge is the interest plus transaction fees and any other fees charged on your credit card account.

    , you'll be keeping credit available for when you need it the most-for an emergency repair or medical bill, for example.
Expand Is there a responsible way to use credit to pay bills?
Paying responsibly means paying your bills consistently and on time. It is essential part of building good credit. Here are a few practical tips when paying your MBNA credit card bill -
  • you can make payments by mail or electronic funds transfer (EFT)

    electronic funds transfer (EFT)

    Any transfer of funds initiated by electronic means, such as an electronic terminal, telephone, computer, ABM or magnetic tape.

    . If you choose the mail, please allow 10 days for delivery. If you use EFT, you will need to set up a preauthorized direct debit payment from your bank account. In either case, please make sure you have sufficient funds in your account to cover your payments.
  • you can greatly reduce the amount of interest you pay simply by paying more than the total minimum monthly payment due. You can avoid interest altogether on purchases by paying your balance in full and on time each month.
Learn more about paying responsibly at Billing and Payments.
Expand What are the warning signs of financial stress?

Here are some warning signs of financial stress. If any of these apply to you, it may be time to take a fresh look at your financial situation or seek professional assistance -

  • you're consistently paying your bills late and making only the total minimum payment due each month

  • you find yourself surprised by the number of new purchases/transactions on your statement each month

  • you've reached or exceeded the credit limit on one or more of your accounts

  • you need to work overtime, or even take on a second job, just to make your monthly debt payments
Expand How can I protect both my credit and myself?
Financial stress is often the result of the unexpected. Unpredictable events can be expensive and usually happen when you can least afford it. That's why credit card companies offer optional insurance protection, like CreditWise® and Credit Alert® , to protect you should the unexpected occur.

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Expand How can I conveniently minimize credit card interest charges?
A credit card is a loan, so the lower your balance

balance

The total amount owed on a credit card account at a given time.

, the less interest you'll pay. You can avoid paying interest altogether on new purchases by paying the new balance total by the total minimum payment due date. For cash advances

cash advance

A transaction to access cash from your credit card account. Cash advances can be made using your PIN at an ATM, over the counter at a bank or at a Western Union.

, access cheques

access cheques

Often provided by card issuers, they can be used just like you would a personal cheque to either move balances or pay for goods and services using your account.

, deposits

deposits

The act of transferring available credit from your MBNA credit card account to your personal chequing account. These funds can then be used as cash.

or balance transfers

balance transfer

The act of transferring debt from one creditor to another. This is typically done between credit cards to take advantage of a lower rate offer or to consolidate debt to potentially lower monthly payments.

interest will accrue from the first day of the transaction. But whatever types of transactions you make, if you can't pay your new balance total in full, paying more than the total minimum monthly payment can help reduce your interest costs.
Expand How can I minimize credit card over-limit fees?
Since it's easy to spend more than your credit limit, keeping track of your balance is critical to avoiding over-limit fees

over-limit fees

A fee that is charged whenever a balance goes over the credit limit, whether due to a transaction, finance charge or any other fees charged to an account.

. Keep in mind that:
  • You can easily monitor your balance by reviewing your account statement

    account statement

    A printed or online description of all the activity on an account for a given statement's monthly billing cycle, including transactions, fees, interest charges, payments and credits.

    in online banking or by phone.
  • In addition to your transactions, fees and interest can also add to your balance and can put you over your credit limit.
Expand How can I minimize credit card transaction fees?
Transaction fees

transaction fees

A fee that may be charged when making certain types of transactions with your credit card. It's usually a percentage of the total amount of the transaction. For example, a transaction fee is often charged when you take a cash advance with your card.

are usually based on the amount of the transaction. You may not be able to avoid them, but if you understand how they work, you can often pay less. Here are some basics -
  • Balance transfer, access cheque and deposit fees—transferring balances to a creditor, writing a cheque or making a deposit to a chequing account can be a great way to take advantage of a lower interest rate, but sometimes there's a fee attached. Consider both the rate and the potential fee before you decide whether a balance transfer, access cheque and/or deposit offer is right for you.
  • Cash advance fees—most issuers charge a fee for cash advances, which can be accessed through an ATM, over the counter at a bank, or a Western Union® office. If your issuer has a cap on fees, you could save money by taking one large cash advance, rather than several small ones. Before taking the cash advance, factor in the amount of the fee to help you decide if the convenience is worth the cost. Also check to make sure you have the available credit as some issuers including MBNA not only have credit limits but also cash advance limits that restrict the amount of cash available.
  • Cash equivalent fees—"cash equivalents" are items that can be used as or changed into cash, like money orders, casino gaming chips, foreign currency and wire transfers. If you need to buy them, you'll have to accept the fee, but be sure to account for the fee amount so you don't go over your credit limit. Cash equivalents are treated the same as cash advances.
Expand Are there ways to avoid all credit card fees?

Using a credit card will always include paying fees. However, there are still ways to enjoy the convenience of your credit card while containing your costs. Here are a few examples:

  • Annual fee—this can be avoided by simply choosing a credit card with no annual fee. However, bear in mind that the interest rate may be higher for these types of cards.

  • Balance inactive fee—if you don't plan on using your credit card for more than a year, simply contact the issuer and close the account.

  • Statement copy fee—while your monthly statement is free, you will be charged for additional paper copy requests. This can be avoided by filing your account statements in a safe place at home. You can also download free copies of the last 6 months of statements from Online Banking.

  • Returned payment fee—this can be easily avoided by making sure that you have enough money in your chequing account to cover your payments before you send them out.

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Expand What is a balance transfer?
A balance transfer is where all or part of a balance (debt) owed with another creditor is transferred from that creditor to another. This is usually done to save money on interest rates.
Expand What are the benefits of balance transfers?
  • Potentially pay off existing balances with less interest—by transferring debt at a higher annual interest rate to a lower annual interest rate

    lower annual interest rate

    A rate that's lower than your standard interest rate and is valid only for certain transactions, for a limited period of time, Also known as "Introductory Annual Interest Rate".

    , you'll save the money you would have paid in interest on such balances.
  • Potentially clear what you owe faster—by transferring higher annual interest rate balances to a lower annual interest rate

    lower annual interest rate

    A rate that's lower than your standard interest rate and is valid only for certain transactions, for a limited period of time, Also known as "Introductory Annual Interest Rate".

    , more of each payment you make will go towards reducing your debt rather than paying off interest. You'll be surprised how quickly your debt can be reduced this way.
  • Potentially make your finances easier to manage—by transferring all your balances to one account, you can keep your finances organized with everything you owe in one place. You also get the added benefit of one monthly payment.
Expand Is there a fee for balance transfers?
There is often a fee for transferring balances from one creditor to another. Check the specific terms and conditions of your account.
Expand Can I transfer balances from more than one creditor?
Yes.
Expand How do I make a balance transfer?
At MBNA, your credit card application may allow you to request the transfer of balances. After you are approved, you can go online at www.onlineaccess.ca or call us to transfer as many loan balances as you like up to the credit available on your account. Learn how at Balance transfers, access cheques, deposits and cash advances.
Expand Is there a limit on the balance amount I can transfer?
Yes, this will depend on your credit limit

credit limit

The maximum credit that a customer is allowed by a given institution. Also known as "Line of Credit".

which is determined by the issuer when you open your credit card account, as well as the fees associated with the transfer. The credit limit on your account will be individual to you and is determined by a number of factors including your credit history

credit history

Includes your account types, remaining balances, payment status, collection information and inquiries. Credit bureaus collect and organize information about people who have credit. The information generally goes back seven to ten years. This report includes your name, address, employer, length of employment and previous credit history.

.
Expand What are access cheques?
Access cheques are a form of credit device that can be used like a regular cheque to access credit available on your account. Access cheques can be written on your credit card account up to your credit available. You can use access cheques to pay for goods and services or to deposit funds into a bank account.
Expand Is there a fee for using an access cheque?
There is no fee for the cheque itself. However there is typically a transaction fee in an amount equal to a percentage of the amount of the cheque. In addition, interest on access cheques is charged from the date a cheque is cashed.

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Expand Why should I learn about credit card annual interest rates?

Even if math isn't your favorite subject, the Annual Interest Rate (AIR) for your credit card is a number that you should be familiar with. The AIR describes the cost of your credit as an annual rate

annual rate

The interest rate for the whole year (annualized), rather than just a monthly fee or rate.

.
 
Understanding your AIR(s) can help improve your financial decisions. You could save by assessing your current rate(s), comparing rates for new offers and avoiding actions that might trigger a default rate

default rate

The AIR(s) which may be applied to your account under certain circumstances, such as if you pay late, miss a payment, pay less than the full amount due by your payment due date, or allow your balance to exceed your credit limit. Also known as "Default AIR" or "Penalty Rate."

. Understanding this critical feature of your account can help you save money in the long run.
Expand Are there different AIRs for different transactions?

It's not unusual to have one AIR for purchases and another for cash transactions. Issuers may also encourage card usage by offering promotional AIRs that give you a lower AIR on certain types of transactions for a set period of time. When the time is up, the AIR goes back to the standard AIR. Used wisely, these low promotional AIRs can save you money.

One type of AIR to avoid is the default AIR. These higher AIRs are often imposed if you pay late or spend more than your credit limit. Some issuers may also impose these rates for other reasons—such as if your payment is declined. Your credit card account agreement

account agreement

Terms and conditions for the use of a credit card and the repayment of debt between the borrower and the lending institution. You'll receive a copy when you open an account, and may also request one through the issuing company's customer service department.

will have the details.
Expand How is monthly interest calculated?
Because customers borrow money for varying amounts of time, banks review account balances daily to ensure customers are only paying for the time they borrowed the money. Therefore, banks commonly charge interest on a compound daily calculation. Each day, they typically review the balance, charge a Daily Interest Rate (DIR)

daily interest rate

The finance charge on a consumer credit balance, expressed as a percentage, that is applied on a daily interval.

to it, if applicable then charge the subsequent day’s interest based on that day's balance plus incurred interest. This computation continues daily for the entire month's statement billing cycle

statement billing cycle

The amount of time between your last statement date and your current statement date. For instance, if your current statement is dated October 1, and your previous statement was dated September 1, there are 30 days in your statement cycle.

.

You can check how monthly interest is calculated for your account, by transaction type, in your account agreement.
Expand How is my monthly balance calculated?
Because your balance may vary from day-to-day, issuers use different methods to determine the balance that is subject to interest charges. The method your issuer uses should be described in your account agreement. Three of the most common methods are average daily balance

average daily balance

The balance subject to finance charge that calculates the balance for each day during the statement cycle. The average daily balance is determined by adding up the daily balances, then dividing them by the number of days in the cycle.

, adjusted balance

adjusted balance

The balance subject to finance charge, which is calculated by adding up all transactions, then subtracting all payments or credits, just before the issuer prints your monthly statement.

and two-cycle balance

two-cycle balance

Calculation of the balance subject to finance charge by averaging both the current month's transactions and the previous month's transactions.

. Your issuer will compute separate balances for transactions with different AIRs.
Expand How does my monthly credit card payment reduce my debt?

A portion of your monthly payment is applied to the principal amount of your credit card account. Compare your monthly payment to your interest charges. Paying even a little more each month can help pay off your debt faster.

Consider a balance transfer or debt consolidation loan—but only if you can save on interest and avoid getting into more debt. Be smart, monitor your balances and make sure you pay off your accounts with higher interest rates. You can do this by transferring your collective balances to a lower rate credit card. Learn how at Balance transfers, access cheques, deposits and cash advances.