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Five Credit Card Mistakes that can Negatively Impact your Credit Rating

June 17, 2019
3 mins
Woman works on her tablet in her living room

Credit cards can be an important tool to help you reach your financial goals. By staying vigilant and using with care, you can avoid these five credit card mistakes that can negatively impact your credit rating:

Failing to pay your bills on time

You've probably said, 'better late than never," at least once in your life. And while that can be true in some scenarios, late payments won't improve your credit rating.

Failing to pay your bills in full, and on time, can harm your credit. If you have to pay an additional late fee, it can even wind up costing you money. Your payment history is arguably the most crucial element agencies use to determine your credit score. That means if you have a string of multiple late payments, you can expect your credit score to start dropping.

To avoid late payments, begin by setting up a tracking system - like a spreadsheet. You'll be able to review all your accounts, including amounts and due dates, in a single glance.

Ignoring your credit card statements

Auto-payments are great for ensuring you don't miss a deadline, but you still need to check your monthly statement for errors or billing mistakes that can be a credit rating pitfall.

While it's always beneficial to make paying the full amount of your monthly balances on time a priority, you'll also benefit by setting aside time to review your monthly statements. Failing to do so could mean missing errors or mistakes, fraud, or purchases you never made.

Spending more than you can pay

Spending more in a month than you can afford to pay back is still a real problem for many Canadians. The most effective way of avoiding accidental overspending is to track your monthly expenditures, carefully. When you know how much you're spending - and on what - you'll be (happily) surprised at how much easier it is to keep your budget balanced. You might also discover expenses you can eliminate, for things like coffee or snacks.

Using too much of your available monthly credit

If you've never heard of the Credit Utilization Ratio, you aren't alone. It refers to how much credit you have available and how much you use.

Here's how it works: If your credit card has a $3,000 limit and you spend $2,250 each month, your credit utilization ratio is 70 percent. To maintain a positive credit score, you'll have to get that ratio down to 30 percent or $900 in this example.

Reach your goal by charging less on your credit cards and using debit or cash instead.

Not using your rewards

If you plan to use a credit card, you might as well get the most out of it by choosing a credit card that offers rewards toward something you value (like travel, low interest, or cash back). You can compare credit cards on Rates.ca to ensure you're getting the card you want for the rewards can really use.

Failing to use your credit card rewards can cost you, especially in cash back situations. Review your reward or bonus options to see what you might be missing.

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RATESDOTCA Team

The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

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