How to Use a Credit Card Wisely
Like any tool, a credit card needs to be used properly for you to maximize its benefits and minimize its harms. Otherwise, it can be like using a hammer with your eyes closed.
Knowing how to use a credit card effectively can help you balance your short-term spending needs with longer-term goals like maintaining a healthy credit score and keeping your household finances in check.
Getting started
BACK TO TOPActivating your card — and keeping it safe
As soon as your credit card arrives in the mail, you’ll need to activate it. Activation is generally a simple process you can complete by phone or by using the financial institution’s mobile app or online portal. In most cases, you’ll be asked for your credit card number, expiry date and the card’s security code (a.k.a. CVV).
Once your card is activated, it’s ready for use. That means it’s now also a target for scammers. Make sure you only share your credit card information on secure websites or through other verified platforms. If there are any passwords associated with your credit card, make each one complex and unique.
Reading up on some common banking scams can also help keep your credit card information safe.
» MORE: How to apply for a credit card (and get approved)
Making payments with your card
Making payments with a credit card is easy, but if this is the first time you’ve ever done so, you may not be aware of your options, which include:
Tap payments. If your card has contactless payment enabled, you can tap it at participating terminals. You may be able to make purchases up to a limit set by the card issuer or merchant without entering your PIN.
Mobile payments. Many card issuers let you add your credit card to a digital wallet and pay with a smartphone or smartwatch.
Chip and PIN. These days, most Canadian credit cards have a chip. When prompted, insert your credit card into the terminal and enter your PIN to confirm the payment.
Swipe. On some older terminals, you may still be asked to swipe your card and sign for the purchase.
Credit card authorization. Sometimes you may need to pre-authorize the use of your credit card to pay for recurring transactions or a future charge.
Because it’s so easy to use a credit card, it’s important to set some limits so you don’t overspend. This is especially useful if you have multiple cards.
For example, you might:
Only use a credit card when it’s absolutely necessary and use cash for everything else.
Avoid linking your credit card to websites that sell items you have a weakness for.
Use Card A only for gas and groceries and Card B only for travel to limit use and maximize rewards.
Establishing good credit card hygiene
BACK TO TOPUnderstand your monthly payments — and make them on time
Knowing when to make your payments can save you both money and stress related to credit card debt.
When you first get your credit card, find out when your payment is expected each month. Set a recurring reminder so you never miss a payment.
Technically, you only have to make your credit card’s minimum payment, which is usually a small percentage of your credit card balance, but only making the minimum payment can result in steadily growing debt that many people have trouble reversing.
You can reduce the amount of interest you pay by understanding your credit card’s grace period.
At federally regulated financial institutions, the grace period on purchases is at least 21 days if you pay your statement balance in full by the due date. This interest-free period generally doesn’t apply to cash advances, balance transfers or cash-like transactions.
It also helps to understand the difference between your current balance and your statement balance:
Your current balance is what you owe right now, including recent purchases that may not yet appear on your monthly statement.
Your statement balance is the amount shown on your last statement.
In general, paying the statement balance in full by the due date is what helps you avoid interest on new purchases during the grace period.
It’s critically important to always make at least the minimum payment every month, even if you have a small credit card balance. Payment history is one of the most important factors in your credit score. Missed payments will hurt it.
A habit of missing your credit card payments will also make it harder to borrow larger sums of money in the future.
Setting up autopay can help keep your bills paid, but make sure there’s enough money in your bank account to cover them. If there isn’t, you could face a missed payment, overdraft or NSF-related fee, depending on your bank account setup.
Learn credit score fundamentals
Your credit score is a number between 300-900 that lenders — banks, credit unions, mortgage companies — use to determine how creditworthy you are.
The higher your score, the more likely you’ll be approved for a loan at a decent interest rate.
The lower your score gets, the more difficult it will be to access the funds you need in the future.
Some of the factors that affect your credit score are directly tied to how you use your credit card, including:
Your payment history. Always try to pay your bills in full and on time. If you struggle with this, consider setting up credit card autopay.
Used credit vs. your available credit. The amount of credit you’re using relative to what you have available is known as your credit utilization ratio. Lower utilization is generally better for your score, and many people use 30% as a rule of thumb rather than a hard cutoff.
Credit history. This refers to how long you’ve had credit accounts open. By getting your first credit card, you’re building your credit history.
Generally speaking, your credit score will increase if you don’t max out your cards and always make your debt payments on time. Miss multiple payments and your credit score will suffer.
One thing to keep in mind: carrying a balance does not build credit by itself. You do not need to pay interest to have a good credit score. What matters more is paying on time and keeping your utilization manageable.
Your credit score may occasionally lose a few points when you apply for a new credit product, but only temporarily. It’s called a hard credit check, and there’s not much you can do about it except avoid applying for too many new credit products within a short time period.
Get to know your benefits
Now that you’ve understood the obligations that come with your credit card, you can turn your attention to the perks.
Many types of credit cards come with a variety of benefits. Knowing what they are and how to maximize them is something you should strive to do.
For example, if your card has a welcome bonus, it will have specific conditions. You might need to charge a certain amount to your card in the first three months of card membership. If you miss the spending criteria, you won’t get your bonus.
Other benefits you’ll want to pay attention to include:
Your earn rate. Some rewards credit cards give you extra points or cash back when spending on specific categories.
Insurance. Whether it be travel insurance, mobile device insurance or purchase protection, specific conditions are required to qualify for your insurance. The Certificate of Insurance that comes with your credit card will list those requirements.
Third-party benefits. Some third-party perks, such as airport lounge access, roadside assistance and status upgrades, may require you to register first.
In addition, if you have a credit card that earns you loyalty points, you’ll want to make sure you understand how the program works to maximize your credit card’s value.
Don’t let the promise of points or cash back, which are generally worth a cent or less, lead to overspending. The interest you pay on outstanding balances can easily overwhelm the value of the rewards you earn.
For example, a card that earns 1% back returns only $10 on a $1,000 purchase, while interest charges can quickly cost more if you carry the balance.
And watch out for a reward credit card’s annual fee. If you’re not earning at least the same amount in rewards each year, you might not come out ahead.
» MORE: How to check your credit score
Check your statements regularly
BACK TO TOPYour credit card statement will be sent to you physically or electronically once a month. It’s a good idea to go over your bill line-by-line to ensure every transaction is accurate.
This may sound tedious, but it’s a good way to ensure that you’re not a victim of fraud.
If there’s ever a purchase you don’t recognize, you’ll want to investigate it immediately. If you’re sure that you didn’t make the purchase, contact your credit card provider’s fraud department, who can open an investigation into the transaction.
For unauthorized credit card purchases, your maximum liability is generally no more than $50 by law unless you demonstrated gross negligence, and your issuer must explain the rules in your cardholder agreement.
DIVE EVEN DEEPER
Shannon Terrell
Sandra MacGregor
Janine DeVault
Shannon Terrell