A research report by Canada.CreditCards.com states that average Canadian owns approximately 2 credit cards. Although this number seems high, there are indeed many people who have credit cards, but don’t use them. Theoretically this might sound like a great idea: you’re not obliged to pay for fees, you can avoid potentially high interest rates and you’ll be free from the credit card debt. However, what a lot of individuals don’t know is that not using your credit card could have a major impact on your overall credit score.
Learning about both the negative and positive sides of this equation is important if you want to ensure that your credit score remains high and your financial history looks good. If your credit cards are inactive, here are 3 reasons why you should start using them:
You are missing out on saving some money
Quite a bunch of credit cards in Canada offer rewards for utilization. Cash-back, travel points and discounts on insurances are just a few of the example incentives to use credit, but if you’re not using your credit card, you might be missing out on valuable deals that could save you a ton of cash. These major benefits will work to help you keep your credit cards active, and making your monthly payments will show creditors that you know how to balance budgeting and paying back debt.
Your payment history is important
If you have not developed a payment history, you might have a difficult time getting approved for good rates on loans in the future. Your credit card history takes up a huge percentage of your credit score calculation, so without history, there’s little evidence that you can manage your finances responsibly. Modest usage of your credit card can help a person build and maintain their credit score, which could result in better approval rates from lenders in the future.
You’re for high credit utilization
Lenders will often see the balance-to-limit ratio on your credit card to determine if it needs to be closed or not. If you’ve been inactive on an old credit card for a lengthy amount of time and decide to close the account, not only will you lose the value that you had access to, but you also could see a dip in your credit score. Before you decide to close your credit card because of inactivity, you might want to consider the negative effects that it comes with.
There are many trade-offs to consider when you don’t use, or decide to close, a line of credit. Instead of associating the word “credit card” with negativity, start using your credit card as a financial tool to get your credit history at par with what lenders consider to be good. Not only will this increase your chances of getting great approval rates on loans in the future, but you’ll also be keeping your money better organized, which could help you save thousands of dollars in the long run.