Why we all need to have and use a credit card
Most people do not fully understand credit or the importance it has in our lives. Almost everyone has a credit card, but what surprises many people is that if you don’t use your credit card at least once a month, it doesn’t actually positively impact your credit. When financial institutions look at lending you credit, such as giving you a mortgage, we look at your credit history.
Almost every Canadian has heard of a beacon score, it’s the number assigned to you to grade your credit worthiness. While everyone should have a beacon score, if you do not have any revolving credit, such as a credit card or line of credit you will actually not have a number at all, but instead get an R or rejected credit bureau. This means that you are essentially a question mark and now you are harder to confidently lend to.
Having a credit card in your wallet isn’t enough, it has to be used at least once a month and paid on time. Even if you just use your credit card for coffee or gas once a month and then pay it off, that will positively impact your credit.
So what about that credit card that has your name on it, but the bill goes to your spouse or common law partner? Your name is on the card, so it helps your credit right? Wrong. While your name is on the card, only the primary cardholder is getting any positive impact for the credit. Just like if you missed a payment or went over the limit, the primary card holder would be held responsible. Now because most cards allow the card holder to get some kind of reward or cash back it makes sense for couples to use one card with a primary card holder for majority of your purchases, you still want to have one in your own name for smaller purchases to ensure you are improving or maintaining your credit.
Another way to help improve your credit is to ensure all of your revolving credit facilities (credit cards or lines of credits) are kept under 75% utilization or usage. If your limit on your card is $5,000, you actually only want to use up to $3,750 otherwise your credit score starts to go down, even though you are under your limit and you are paying your bill on time. Going over your limit is even worse, if you max our your credit card or go over your limit it negatively impacts your credit as significantly as if you were to miss a payment.