There’s a common misconception that avoiding the use of a credit card helps boost your credit score. Nothing could be further from the truth.
National statistics reveal that mounting credit card debt is strangling disposable incomes. For every dollar earned, Canadians owe $1.67 . Bloggers add fuel to fire by narrating terrible tales of families ruined by student loans and credit card debt. Understandably, credit card debt creates a kind of phobia in the public that prevents people from using credit cards. But is discarding your credit cards the solution?
Responsibly using credit cards create a record of purchases and payments to display your money handling skills. Maintaining a positive track record can increase your credit score. To build your credit score, take practical steps, such as resolving to use only a fraction of the overall limit.
Credit card use creates a track record that showcases your financial skills
A surefire way lenders analyze your financial strength, credit worthiness and limits is by your credit history. Obtaining a credit card and carefully using it is a simple way to strong financial track record. Remember that there is a strong connection between the way you use a credit card and your credit score. Use your credit cards practically and sensibly without hitting or exceeding the approved limit. By doing this, you improve your chances of maintaining better a credit score.
Good payment history paves the way for big ticket low-interest loans
Use your credit card limit effectively and promptly repay your balance in full every month. Lenders are less cautious to approve low-interest lines of credit, mortgages, and auto loans to responsible spenders.
If you are a sensible spender, you have no reason to fear credit card debt
Having many credit cards in your wallet does not necessarily mean you are sliding into unmanageable debt. Your financial goals, savings habits, and attitude towards spending are the factors that ultimately make or break your financial fortune. If you have the tendency to overspend money, you are certain to face problems with or without credit cards. Aim to create and maintain a clear track record of careful and balanced money management. For example, you can create Excel spreadsheets to budget and keep track of past, current and future expenses.
Credit cards help cut excessive spending
People who habitually overspend can control expenses by opting for credit cards with smaller spending limits. Figure out which expenses you can pay with cash and/or shift to your credit card. You can use your credit card to make payments towards small expenses like a Netflix subscription, groceries, and some utilities. Paying small expenses with your credit card creates a reliable spending and repayment pattern. You may also make automatic payment schedules for these expenses if your credit card company allows it.
Credit agencies monitor secured credit cards
Prepaid credit cards and debit cards are different because purchases are paid from a prepaid fund or bank balance. However, these cards don’t test your capacity to borrow and repay systematically. Secured credit cards are backed up by balances in your savings account. Any credit history you establish gets reported to credit monitoring agencies. Secured credit cards are a useful alternative to people who can’t access unsecured credit cards. Secured credit helps new immigrants to Canada, people who have no credit history or have previously filed for bankruptcy. These situations require that you either create a credit record or rebuild one.
The fact that you’ve avoided using or getting a credit card proves that you are cautious with your finances. Not so surprisingly, these are traits commonly found in people who handle credit cards with greater maturity. When used with care, credit cards become effective tools in establishing your financial future.
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