/ Published 8:00 AM EST / Alyssa Charles

What you need to know about using your credit card

Man paying for lunch with credit cardWhen it comes to making everyday purchases, from a $15 lunch to a $1,500 washer and dryer, many North Americans tend to reach for their credit card. But what does the convenience of using a credit card really cost?  In the U.S., the average household with credit card debt has balances totaling over $16,000, costing about $1,300 a year in interest[1]. According to the 2016 Federal Reserve Payments Study, the number of credit card payments in the U.S. grew at an annual rate of 8%, from 2012 through 2015.

With more and more consumers choosing to pay with credit, it’s imperative that users are credit savvy and knowledgeable about how to properly use credit. We asked two of our Retail Lending Specialists, Helena Corallo and Kate Munoz for their take on smart spending with credit. 

Here are their 10 tips for using your credit card wisely.

  1. Always check your credit card statements and pay your bills on time.
  2. Avoid carrying balances on your credit card
  3. If you can’t pay off your entire balance, at the very least, make the minimum payment.
  4. If you have revolving credit, ideally the amount you owe should be kept at less than 50% of overall borrowing limit. So if you have a line of credit for $20,000 you should ideally keep the amount owing below $10,000.
  5. If you have more than one credit card, have one with a small limit that you know you can pay off monthly and one with a large limit, that you don’t use much. It will allow you to keep your credit usage under 50% so your credit rating remains higher (credit utilization has a large impact on credit ratings).
  6. If you carry multiple debts, pay off the debts with higher interest rates first.
  7. Read the fine print! Just because you are offered a great introductory rate or extra reward points, it doesn’t mean it’s a great deal. There may be costs associated with the ‘great deal’ you think you’re getting.
  8. Be honest with yourself. Some types of credit are better than others. If you are a spender, applying for a number of credit cards may not be the wisest thing for you to do.
  9. Be cautious of joint credit. You don’t want someone else harming your credit rating.
  10. Don’t avoid making payments on your account because you are in a dispute with the lender – you will only damage your credit. Continue to make the payments while you resolve your dispute.

There are also a number of things that the average consumer misunderstands or does not know about using credit like…

- It’s better to use credit and regularly pay off your credit, than it is to have little or no credit – this shows banks and other lending institutions that you have the ability to handle credit 

Woman shopping online with credit card- High credit utilization can negatively impact your credit score – for example, if you have a line of credit and it’s constantly sitting at the maximum amount, it will bring down your credit score 

- You can check your own credit reports though sites like TransUnion and it doesn’t impact your score. You should check it regularly to ensure the information on the report is accurate and up to date because this is what Lenders use to make their decisions on whether or not to approve your loan.

- If you do consumer proposal or file for bankruptcy it will have a big impact on your ability to get credit. Most major banks won’t consider lending to you for a period of 3 years.

- Multiple credit checks can affect your credit rating, so when you get great credit cards offers in the mail – just remember that they will check your credit, and that will impact your credit score. Also, if lenders notice that you are applying for lots of credit, they may consider you a risk and may charge you fees or higher rates, or may not even approve you.

- Never cancel your oldest credit card as it provides your bureau the most data. Cancelling your credit card can bring down your credit score. And cancelling a credit card that you’ve had for a long time hurts it even more. Just stop using it and eventually the card will become inactive.

Have questions about building your credit or creating a strategy to repay credit debt? Get in touch with one of our financial advisors today.

[1] https://www.nerdwallet.com/blog/average-credit-card-debt-household/