Using Credit Wisely
Commercial Services
A credit card is a great financial tool. It can help you achieve many milestones during your lifetime, from buying a house and educating your children, to travelling around the world. Credit is also a big responsibility. If you don't use it carefully, you may owe more than you can repay, damage your credit rating and create credit problems for yourself that can be difficult to fix. Here's how you can use credit wisely:
Why avoid credit problems?
Because creditors decide to extend credit based on these three factors:
1) Capacity - Can you repay the debt?
2) Character - Will you repay the debt?
3) Collateral - Is the creditor fully protected if you fail to repay?
- Do you have a credit problem?
- The best ways to use credit wisely
- Steps to correct minor credit issues
- Obtain an online copy of your personal credit report by visiting TransUnion Canada
Do you have a credit problem?
You do if...
- You can only make the minimum payments on your credit cards
- The size of the balance owed is a surprise each month
- You frequently take cash advances on your credit cards
- You're chronically late paying your bills
- You're borrowing to pay for items you would normally pay for with cash
- You're tapping into your savings to pay current bills
- You put off medical or dental visits due to the lack of money
- You're unsure of how much you owe
The best ways to use credit wisely:
- Remember that credit is a loan that you must repay
- Shop around for the best rate deal
- Read the fine-print of your credit agreement
- Try to pay off your monthly debt balances
- Always pay on time and avoid a black mark on your credit record
- Set a budget, follow it closely and watch how much you're paying on credit
- Notify credit issuers promptly in the event you must be late on a payment
- Keep moderate credit limits
- Make sure that monthly debt payments (excluding a home mortgage) do not total more than 20% of monthly net income
Take the following steps to correct minor credit issues:
- Stop impulse buying (only go to the store when you need something specific)
- Pay with cash or cheques only (you'll spend less than you would using credit cards)
- Put your credit cards away
- Track your monthly spending (then identify ways you can cut back)
- Prioritize debt payments (cover at least the minimum amounts due on all your loans and credit cards)
- Talk with your creditors (responsible lenders help when you have financial difficulties)
- Seek credit counselling (select links from TransUnion Canada Web site )
