Credit Cards: Statistics and Facts
- A credit card is a convenient and flexible payment tool for both consumers and retailers.
- Credit cards provide interest-free credit from the time of purchase to the end of the billing period.
- Since more than 64% of Canadians pay their credit card balance in full each month,1 the interest rate for two-thirds of credit card users is zero.
- For those who choose to carry a balance:
- Credit cards offer access to unsecured credit (no collateral required).
- There are more than 70 low interest rate cards on the market and over 40 of those cards have an interest rate of under 12%.2
The bottom line
- Canadian consumers have tremendous choice in selecting a credit card.
- The majority of Canadians use their credit card as a method of payment rather than a means of borrowing.
- Credit cards offer valuable benefits for both consumers and retailers.
A credit card is a convenient and flexible payment tool accepted in 170 countries and at 30 million locations worldwide.
- Access to unsecured credit (no collateral required against amounts charged).
- Interest-free payment from time of purchase to the end of the billing period.
- Instant payment of purchases, allowing for instant receipt of goods and services.
- 24/7 access.
- Fraud protection with zero liability to the consumer in cases of fraud.
- Other rewards and benefits, such as air travel points, car insurance, damage and loss insurance and extended warranty programs.
Retailers are not required to accept credit cards, but do so in increasing numbers because that is the method of payment many customers prefer. Retailers that do accept credit cards receive many benefits, including:
- Fast, guaranteed payment, which can reduce line-ups at checkout. If every credit card transaction took an extra 30 seconds, it would use up an additional 27 million hours of staff time each year.
- The ability of accepting credit without worrying about the creditworthiness of customers, insufficient funds or outstanding receivables.
- Reduced cash on hand and cash handling time and costs, including counting cash at the end of the day, armoured transport, higher likelihood of theft and pilfering and potential mistakes by cashiers.
- Increased sales; ability to offer customers a variety of payment options.
- Expanded markets; ability to sell to customers throughout Canada and around the world in the currency used by the retailer.
When making a purchase, consumers can choose to use cash, cheques, debit cards, credit cards as well as electronic payments services like PayPal and Interac Online.
When it comes to choosing a credit card, banks offer consumers a wide variety of products. Customers may choose among standard cards without an annual fee, premium cards that offer rewards and features, and low-rate cards if the interest rate is a key consideration influencing the card choice.
- Hundreds of institutions in Canada, including banks, credit unions, retailers, caisses populaires, trust companies and finance companies offer credit card products.
- 73.9 million Visa and MasterCard cards are in circulation in Canada.3
- There are more than 70 low-rate cards on the market and over 40 of those cards have an interest rate of under 12%.4
Consumers are encouraged to learn more about the choices available and to select the credit card that best suits their needs. Just like any item or service that a customer buys, the customer has the control to decide on their credit product.
For longer-term borrowing requirements, a term loan or line of credit may be a better choice.
Consumers should visit the Financial Consumer Agency of Canada (FCAC) website www.fcac.gc.ca for an extensive list of cards and features, and use the credit card comparison tool to help select the card that best suits their needs.
Consumers with credit cards from banks are protected by Bank Act regulations that require:
- Disclosure of the interest rate at the time of solicitation or application, and on every one of your monthly statements.
- Statements to include itemized transactions, the amount you must pay on or before the due date in order to have the benefit of a grace period.
- Disclosure of the previous month’s payments and the current month’s purchases, credit advances, as well as interest and non-interest charges.
- Plain language information for customers.
- Rules on advertising.
- Limits on consumer liability in the event of fraud.
There are a number of factors that influence card fees and interest rates.
- An interest-free period from purchase to payment, depending on the card, as long as the balance is paid in full when owing.
- Access to unsecured credit where no collateral is needed, which makes it a higher risk for the credit card issuer.
- Significant costs to operating the credit card system including processing a large volume of transactions, technology that is constantly updated to support transactions, preparing and mailing statements, collecting payments and the costs for providing value-added rewards programs.
- Costs to fight fraud and customer reimbursement. When fraud occurs, customers have zero liability. In 2012, financial institutions reimbursed more than $439 million to their Canadian credit card customers, representing the losses these customers suffered as a result of criminal activities.
- The Bank of Canada rate represents less than one per cent of bank funding and does not influence the pricing of consumer lending or credit cards interest rates.
Most Canadians pay cards off every month
- A 2011 survey by the The Strategic Counsel found that 64% of Canadians pay their balance off in full every month, while only half of American households do.
- And 93 per cent who do not pay off their card balances each month report that they pay more than the minimum amount.6
- Income is not a factor in who pays off their credit cards. Statistics Canada found that the percentage of low, middle and high income families paying off their credit cards every month is roughly the same.
- The credit card delinquency rate in Canada is half of what it is in the U.S.7
- Canadians carry an average of two credit cards per household, while U.S. consumers average six.8
- Credit cards account for just 5% of total household debt.9
- Banks work with clients who are concerned about their debt, helping them get control of their finances or choose more suitable credit products. Banks also support non-profit credit counseling services.
There have been proposals in the past and more recently to cap credit card interest rates at 5 per cent above the prime rate. This would not reduce the cost of credit as intended, but instead it would:
- make it harder for some Canadians to get a credit card,
- limit choice and innovation in credit products.
Currently, there are more than 70 low-rate cards in the marketplace to choose from, so there is a lot of choice for consumers who want to reduce their interest payments. An overwhelming number of Canadians – 92% – believe that consumers have a responsibility to shop around for the credit card that best meets their needs.