Managing your credit cards responsibility means making your payments on time, and in full. It also means not maxing out your credit card; using over 30% of your available credit can hurt your credit score.
When you manage your credit cards responsibly, you’re allowing yourself to benefit from all of the positive features a credit card has to offer, and avoid the cons which can affect your everyday life.
Below are a few reasons why it’s important to take the time to manage your credit cards responsibly.
You Can Reap Rewards and Cashback
Knowing how to use a credit card to your advantage is important, otherwise you may miss out on different financial opportunities. For example, using a credit card can earn you rewards that you otherwise wouldn’t earn using a debit card. Different kinds of credit cards offer different kinds of rewards. Some present flight points, cashbacks, free hotel stays, and more. When managed correctly, credit cards can earn you hundreds of dollars each year just for using them for everyday purchases. If you’re a frequent traveler, many credit cards offer great flexibility by letting you redeem miles or points for a range of items, including flights on any airline.
It’s important to understand what benefits your credit cards have to offer so that you can make the most of it. Make sure that you also activate these rewards categories, which usually happen on a quarterly basis.
You Build Your Credit Score
One of the most important reasons to stay on top of your credit cards by managing it responsibly is that it builds your credit score. Why is it important to build your credit score? It demonstrates your history of paying off debts. If you don’t pay off your debts on time, this can reflect poorly on your financial habits, and lenders will notice this.
Credit scores are looked at if you want to rent or buy a home, be approved for a loan, such as an auto loan, and even sometimes to be approved for a job. So, if your credit score isn’t the highest, it may be hard to be approved for certain things.
In Canada, according to Equifax, a good credit score is between 660 and 724. A score between 725 and 759 is considered very good, and a score of 760 and above is considered an excellent score.
You’ll Owe Less Interest and Pay Less Fees
When you pay your credit card balance on time and in full, you won’t pay any interest or late payment fees, which can add to your monthly debt over time.
Consider setting up automatic monthly payments, or autopay. Most credit card companies offer this feature which allows you to have your balance or minimum payment automatically paid from a bank account when your statement is issued.
It’s also important to use your credit card for everyday purchases that you can always pay off in full. If you can’t make the full payment, your interest will build.
You’ll Have Less Debt, and be Closer to Financial Freedom
All in all, being financially responsible with your credit cards leads to less debt, and brings you closer to financial freedom.
If you find yourself struggling to manage your credit cards or to pay off debt, consider using the snowball or avalanche method.