Virtually everyone uses a credit, and with good reason. They give us a simple way to carry money, enable us to spread payments over time, and are convenient to use. They even make online shopping a matter of a single click. However, the same things that make them easy to use can be their downside. Credit cards are a detriment to some families, who end up drowning in debt by over-using the card. If consumers don’t use a credit card wisely, they can spend years trying to dig out of the debt they’ve created.
Fortunately, when credit cards are used effectually, they can be a tool to help your financial situation. The best rated credit cards also offer perks and rewards that make them fun to use. Having a credit card (and using it responsibly) helps you to get good loan rates and even make purchases you could not normally make. Here are some tips for utilizing credit cards as part of your overall financial strategy.
Always check your credit report. Anyone over the age of 18 should be checking their credit report yearly or even quarterly. Credit information shows lenders whether you are worth the risk to them; if there is incorrect information on your report, it will reflect badly on you and can affect your loan interest rate.
Credit reports come from one of three places:
You can get a $1 report from each of these companies, or get a free yearly report from AnnualCreditReport.com. The reports show the total debt you have accumulated, whether you make payments on time, and how many recent credit inquiries you’ve made (think credit applications). It is worthwhile to get a report from each of them, spreading them out over 3 or 4 months.
Know your credit ratio. Debt plays a part in whether you can reach your long and short-term financial goals. Most financial advisors suggest that your total debt – including loans for vehicles, your home, student loans, and credit cards – should not exceed 20% of your income. By calculating this ratio frequently throughout the year, you can adjust spending habits and cut back on unnecessary purchases. This helps you stay out of the debt trap, but even better it keeps you from tapping into retirement funds.
A rarely heard warning is perhaps one of the most important: think before cancelling. Often, people believe that cancelling an old credit card that they don’t use any more will help their credit. Actually, it can hurt it. So can closing out all your store credit accounts. This is because lenders are looking for one more component: longevity. They like to see a good debt-to-income ratio, and they love for you to make payments on time. But they want to be sure you are a good risk over the long term.
It’s also worth mentioning that, if you close a credit card account, you are reducing your available credit without actually changing the amount of credit you already carry. It changes the credit ratio, without actually buying anything extra! So think twice before cancelling out accounts, even older ones you don’t use any more.
Lastly, credit cards are tools. By using the above tips, you can make credit cards work to your financial advantage. When you manage them carefully, they can help build credit and can enable you to create the lifestyle you’d like to have. Through use of cards like the Canadian Tire Mastercard, you can not only build up your financial status, but also enjoy perks like low APR and cash back rewards.