Some personal finance experts swear by using credit cards, while others recommend avoiding them at all costs. The reality is that you sometimes need a credit card for essential payments, like bills and travel.
Mastering credit can help you build a solid financial foundation. A strong credit history can give you better options when applying for a personal loan or a home mortgage.
What You Need to Know About Credit
There are a few things that you must know about credit before you can master it.
You need some credit history for most loans.
You won’t be able to build up your credit score without any credit history, which could hurt you when you apply for any loan or financing. You will also need a credit score when you look for a place to rent. Many landlords and property management companies will ask for your credit score to ensure they can trust you to make your payments on time.
A credit card is the easiest access to credit.
Even though there are issues with credit cards, the reality is that a credit card is the easiest way to access credit and can help you build a credit history. A credit card from your local bank with a $500 limit could be a good starting point.
You have to make your payments on time.
The key to mastering credit is to make your payments on time. Late payments are reported to the credit bureaus and stay on your record for up to six years, which means your credit score could be significantly impacted.
On top of making your payments on time, pay the entire balance to avoid accruing any interest. When you only make the minimum payment, you have to pay interest on the remaining balance. It can become challenging to pay off your credit card balance when only making the minimum payment because the interest will continue accumulating, putting you in a position where you might feel stuck.
How to Build a Strong Financial Foundation With Credit
To build a solid financial foundation, learn how to use credit instead of letting credit cards use you. Here’s what we recommend.
Check your credit report.
You will want to check your credit report to ensure everything’s accurate. You can check your credit report for free online with Equifax Canada and TransUnion Canada.
Here are errors that you should look out for on your credit report:
- Incorrect mailing address and personal information.
- Any late payments that aren’t accurate.
- Any open accounts that don’t belong to you.
Immediately fix any issues by filing a dispute with a credit bureau to clean up your credit.
Only apply for credit you can handle.
Applying for multiple credit cards and increasing your credit limit may be tempting. You don’t have to look far to find an offer, either. Many retail stores and even street festivals will promote credit cards. Some credit card providers will try to lure you in with gifts and unique perks.
Only apply for credit that you can handle. Taking on more credit than necessary could lead to irresponsible spending, debt, and a hit on your credit score.
Try to avoid the debt trap.
It’s tempting to apply for a payday loan or to max out your credit cards when you’re a little behind on the bills. Thankfully, there’s a solution—Payactiv gives you access to the money you’ve already earned through your employer, so you don’t have to stress about how to cover expenses.
The Final Word On Credit
By easing your way into credit cards, keeping a small limit, and making your payments on time, you can build up your credit to create a strong financial foundation for the future.
