Wednesday, July 28, 2010

Mastercard Updates Rules

Mastercard has updated its Cardholder agreement to make it consistent with the new credit card regulations from the Canadian federal government. However, many of these changes don’t take effect until 2010 September 1.

Here are the highlights:

Credit Limit

You must provide your consent before your credit limit is increased.

End to Double-Cycle Billing

You won’t be charged interest on new purchases if you pay your bill in full even if you didn’t pay it in full the previous month.

Cancellation of Card

Your card can be canceled if you have no activity for 9 consecutive months.

The first two changes are definitely customer-friendly. To compensate, we can expect some combination of higher credit card interest rates, lower credit limits, and higher credit-worthiness to acquire a credit card. Banks and credit card companies are in this business to make money, and we have to expect them to shed unprofitable customers.


  1. The provision to allow an unused card to be cancelled may be detrimental to some people that keep a credit card just for emergencies. Imagine having a card hidden in your car in case you lose your wallet and discovering it doesn't work just when you need it most.

    Suze Orman suggests never closing a credit card, since a reduction in available credit reduces one's FICO score. I don't know if we suffer a similar fate in Canada - we don't seem to be subject to an all-important "credit score" to the same degree as our American neighbours.

  2. @Gene: I agree that the 9-month rule could be a problem. I guess you have to rotate through your cards. I wonder if having a credit card "expire" has the same effect as closing the card.

  3. I think a closed card would damage your credit score.

    Part of the score is calculated based on the length of time a credit card (or any loan in good standing) has been open.

    So lets say I have 3 credit cards. One has been open for 10 years, one open for 5 years and one open for only 1 year.

    If the CC company decides to close my 10 year old CC based on "lack of usage" oldest piece of credit history is now only 5 years rather than 10. This negatively affects one's FICO score.

    15% of one's score is determined by length of credit history.

  4. @Paul: So, if you decide to cancel one or more cards, there is some advantage to closing the newest ones.

  5. That's my understanding.

    All things being equal (credit limits, interest rates, card perks), closing the most recent card makes the most sense.

    But if it were me, I'd just ask for a credit reduction and keep them all open. (assuming we aren't talking about a crazy number of cards)