Take control of your credit: Your brief Guide to Credit Cards and Credit Scores

Take control of your credit: Your Guide to Credit Cards and Credit Scores

Feeling a bit overwhelmed by credit? Don’t, you're not alone and please remember that you are in charge of this. It's easy to feel like the world of credit scores and credit cards is a complex maze, but here's a comforting truth: understanding and improving your credit rating is absolutely within your reach, and it doesn't have to be a source of stress.

Let’s walk through some steps how to use a credit card wisely to build a stronger credit score.

Why Does Your Credit Rating Matter, Anyway? (And Why It's Okay If It's Not Perfect Yet)

Your credit rating, often shown as a credit score, is essentially a report card on how reliably you've managed borrowed money. Lenders (like banks for mortgages or car loans, or even landlords) look at this score to understand how likely you are to pay back what you borrow. A good credit score can open doors to:

• Easier approval for loans and mortgages: Often with better interest rates, saving you money in the long run.

• Lower insurance premiums: Yes, sometimes your credit score can even influence this!

• Renting an apartment: Landlords often check credit as part of their application process.

• Getting a cell phone plan or utility service: Companies want to know you'll pay your bills.

  
  

If your score isn't where you want it to be right now, please know that it's okay. Everyone starts somewhere, and many of us face financial hurdles. The wonderful news is that credit scores are dynamic – they can always be improved with consistent, positive financial habits.

Your Credit Card: A Tool for Growth, Not Just Spending

Think of your credit card not just as a way to pay for things, but as a powerful tool you can use to demonstrate responsible financial behaviour. When used thoughtfully, it's one of the most effective ways to build a positive credit history.

Here are some steps to turn your credit card into your credit-building ally:

1. Start Small and Stay Within Your Means:

   
   

   • The Golden Rule: Only charge what you can comfortably afford to pay back in full every single month. If you have a $500 limit, and you only have $50 to spare for payments, only spend $50.

     
     

   • Why it helps: This is the single most impactful way to build a good credit score and avoid interest charges. It shows lenders you're responsible and can manage debt.

     
     

   • Empathy Moment: We know life happens, and sometimes unexpected expenses pop up. If you must carry a balance, aim to pay as much as you possibly can above the minimum payment. Even a little extra makes a difference. Try to stop using the card. Stick that card in the back of your sock drawer and just work away at reducing the balance at your own pace.

     
     

2. Pay Your Bill On Time, Every Time:

   
   

   • Consistency is Key: Payment history is a huge factor in your credit score. Setting up automatic payments for at least the minimum amount (or the full balance, ideally!) is a game-changer.

     
     

   • Set Reminders: Use your phone, calendar, or banking app to set reminders a few days before your due date.

     
     

   • Why it helps: Demonstrates reliability to lenders. Late payments can significantly harm your score.

     
     

   • Empathy Moment: Life is busy, and sometimes a due date can slip your mind. If you miss one, pay it immediately. While it's best to be on time, catching up quickly is better than letting it linger.

     
     

3. Keep Your Credit Utilization Low (The "Sweet Spot" Rule):

   
   

   • What it is: This is the percentage of your available credit that you're currently using. For example, if you have a $1,000 credit limit and you've spent $300, your utilization is 30%.

     
     

   • Aim for Under 30% (Ideally Lower!): Experts generally suggest keeping your utilization below 30% of your total credit limit. If your limit is $1,000, try to keep your balance under $300. Lower is even better – some aim for under 10%.

     
     

   • Why it helps: High utilization can signal to lenders that you might be over-reliant on credit, even if you pay on time. Low utilization suggests you manage your money well.

     
     

   • Practical Tip: Even if you pay your full balance every month, your bank might report your balance to the credit bureaus before you've paid it off. If you're trying to optimize this, consider making a payment before your statement closes, so a lower balance is reported.

     
     

4. Don't Close Old Credit Cards (Unless Absolutely Necessary):

   
   

   • Age Matters: The length of your credit history plays a role in your score. An older card, even if you rarely use it, contributes positively to the "average age" of your accounts.

     
     

   • More Available Credit: Keeping an old card open (with no balance) also increases your total available credit, which can help keep your utilization low.

     
     

   • Why it helps: Shows a long, stable history of managing credit.

     
     

   • When to consider closing: If an old card has high annual fees you don't use, or if it's too tempting to overspend. Your financial well-being comes first.

     
     

5. Be Mindful of New Credit Applications:

   
   

   • "Hard Inquiries": Each time you apply for new credit (a credit card, a loan, a mortgage), it results in a "hard inquiry" on your credit report. A few inquiries won't hurt much, but many in a short period can temporarily lower your score.

     
     

   • Why it helps: Too many new applications can make lenders think you're desperate for credit or taking on too much debt.

   • Friendly Advice: Only apply for credit you genuinely need.

     
     

Checking Your Credit Score and Report (It's Free and Easy!)

Knowledge is power, and knowing where you stand is the first step towards improvement. In Canada, you can get a free copy of your credit report from the two main credit bureaus:

• Equifax Canada : https://www.equifax.ca/personal/products/equifax-consumer-credit-report

• TransUnion Canada : https://www.transunion.ca/product/consumer-disclosure#articleSection2

  
  

You are legally entitled to one free copy per year from each. Many banks also offer free credit score checks through their online banking apps. Check these regularly to ensure there are no errors and to track your progress. Seeing your score improve can be incredibly motivating!

You've Got This.

Building a strong credit rating is a journey, not a sprint. There will be good months and perhaps challenging ones, and that's perfectly normal. Focus on making small, consistent, positive choices, and celebrate every step forward. With a little patience and these thoughtful strategies, you'll be well on your way to a more secure and empowered financial future.