How credit-savvy are you?
Credit cards are a safe and very convenient way to make payments in-store or online. It’s no wonder that more than 91 percent of adult Canadians have at least one credit card, often two. So it’s essential to manage credit cards properly to protect your sparkling credit rating.
Canadians now enjoy a huge selection of credit cards to choose from to meet their lifestyle and budgets. From no-fee and low-fee options to premium cards that offer perks like cash back options, travel rewards, or points to redeem for merchandise, groceries, and even gas.
However, experts remind us to use credit cards as a method of payment, rather than a means of borrowing, due to dramatically higher interest rates. For larger purchases like home renovations that require more time to pay off, choosing credit lines or loans make far more financial sense.
Good habits
To minimize debt and interest charges, Brent Reynolds, Vice President at Capital One, advises his clients, “shop around for the best rates and then consolidate your loans onto one card with the lowest interest rate. In general, you should pay off loans with the highest interest first.If you are experiencing a finan- cial hardship, such as job loss or unexpected expenses that cause you to fall behind on your payments, let your lender know. They have programs to temporarily reduce your interest rates.”
Reynolds also urges his clients to take advantage of the many free tools out there. For example, you can receive credit alerts that send a text when payments are due or when your balance is approaching its limit. Before applying for any financial product it is important to know what your credit score is and your likelihood to qualify. It is absolutely free to find out your credit score by mail.
Late payments
According to Maura Drew-Lytle, a spokesperson for the Canadian Bankers Association, “making a late payment can have a negative impact on your credit rating. Lenders want to see that you are a reliable borrower, and paying your bills on time demonstrates that you are a good credit risk.”
With a poor credit history it is more difficult to get a loan, finance a vehicle, or secure a mortgage without a co-signer. This results in higher interest rates. Also, late payments can stay on your record for up to six years. It’s best to track and make minimum payments. Setting up automatic monthly payments through your bank account is a simple solution.
The good news is that Canadians are managing their credit cards quite well. “Seventy percent of Canadians pay their credit card off every month so, for them, the interest rate is zero,” says Drew-Lytle. For the other 30 percent of Canadians who do carry an outstanding balance, she recommends developing a budget based on your income and advises people to review their statements, which outline how long it will take to pay off, if making minimum payments.