Credit cards are a powerful tool. If you use them properly, you can make life much easier for yourself with automatic payments, cash back rewards, and other benefits like extra protection for rental cars.
But like any powerful tool, credit cards can be misused – with disastrous results. It’s estimated that the average Canadian has nearly $4,000 in credit card debt. It can be very hard to get out of debt with high-APR credit cards – so the best way to deal with this is by avoiding debt altogether.
Whether you’re rebuilding your credit score after paying off your debts, or you’re just getting started with your first credit cards, here are some top tips for using your credit card responsibly.
1. Pay Your Balance Off Every Month
If you only take on piece of our advice in this article, make it this one. Pay your balance off each month. Seriously. There is no excuse not to – and if you fail to do so even once, you will end up spending quite a bit of money.
As soon as you make a minimum payment – or fail to make a payment altogether – interest from 14-25% will start building up on your outstanding balance. If you pay $90 on a $1000 credit card bill, for example, and you have a 15% APR, you will owe $135 more on your next statement balance.
Paying your balance off every month is the only way to ensure you don’t get hit with high interest rates.
2. Only Buy An Item On Your Credit Card If You Can Already Afford It
Don’t have the cash for that new computer, or that vacation you want to take? Don’t put it on your credit card.
If you don’t have the money, you don’t have the money – so putting your purchases on a credit card is a terrible idea. You will end up in a “debt spiral”, which can damage your finances and your credit.
3. Never Skip A Payment
Skipping payments can result in high “penalty interest” rate of up to 30% APR, late fees in excess of $35-$50, and a big hit to your credit score. It’s never worth it to skip a payment. Even if you have to make a minimum payment instead of paying the full statement balance, don’t skip your payments.
4. Keep Your Credit Utilization Low
This will help you avoid debt, and it will help boost your credit score. A big part of your FICO score is a metric called “credit utilization”. The lower your credit utilization is, the higher your FICO score will be.
For example, if you have 2 credit cards with a combined limit of $3,000, and you have a $500 balance, your credit utilization is 16% – which is great! You want to keep it under 30% for maximum benefits. This helps boost your credit score, and also helps you avoid debt.
5. Don’t Open Too Many Credit Accounts
It’s tempting to open multiple credit cards, especially if you are trying to get rewards points, or benefit from “new cardholder” offers, like 0% APR or big cashback rewards. However, restrain yourself to 1 or 2 accounts until you have proven you can use your cards responsibly.
The more cards you have, the more likely you are to overspend – or forget to make a payment by accident. Neither one of these things is desirable, so try to minimize your number of open credit accounts.
Use These Tips To Spend Responsibly With Credit Cards!
When you use them properly, credit cards are very helpful indeed. So take these tips into account when using your card – and rebuild your credit score.
And if you have bad credit in Winnipeg, and you need an auto loan to get a used car, don’t worry. You’ve got options like Ride Time! We specialize in working with Canadians who have subpar credit. With our specialized lenders and affordable used vehicles, we have what you need. Come in today, and learn more!
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