5 Golden Rules of Credit Cards

Are you thinking of getting a credit card? There are a few things you should know. While credit cards can be a beneficial financial tool, they can also present various challenges if used irresponsibly. To ensure life with your new credit card goes as smoothly as possible, check out the five golden rules of credit cards below. 

Pay your credit card bill every month

The #1 rule of using a credit card is to pay your bill on time every month. You should always aim to pay your credit card bill in full. Failing to do so can result in higher interest rates that will cost you more money down the line. If it helps, we recommend treating your credit card like you would cash or money in the bank. You will have to pay back what you spend so only spend what you can afford.

Don’t pay less than the minimum amount

Whatever you do, always strive to pay off the minimum amount each month. Failing to pay the minimum balance can lead to hefty fees in the form of high interest and over time, can even lower your credit score. Ultimately, the faster you pay down your credit card, the less interest you will pay, and the more beneficial your card will be long-term.

Never exceed your credit limit

All credit cards come with credit limits. Know your credit limit and don’t go over it. Although most banks will allow account holders to go over their credit limits, doing so typically results in a fee. Repeatedly going over your credit limit could also give the bank an excuse to raise your interest rates.

Start with one credit card before adding others

It can be tempting to sign up for every credit card under the sun. With alluring sign-up offers at every turn, we understand the appeal. However, we urge Canadians to resist the temptation to sign up for multiple credit cards until they’ve developed some solid credit management habits. First, it’s important to note that every time you apply for a credit card, it appears on your credit report. So only apply for credit cards you have a high chance of being approved for. Applying for multiple cards, especially if your applications are rejected, can negatively impact your credit score. Stick with one credit card to start and if you feel responsible even for another in the future, apply for one then.

Avoid using cash advances

Cash advances are offered by many financial institutions, but it’s best to avoid them if you can. It is one of the most expensive solutions to accessing credit. Typically, there is a flat fee for using a cash advance, on top of the interest rate, which is charged instantly. Plus, interest rates on cash advances are much higher than your regular rate. Whatever you do, try to avoid falling into this trap.