3 Reasons Why You Should Use Your Credit Card

June 21, 2017

If you’re inactive on your credit cards, here are 3 reasons why you should start using them

According to a research report conducted by Canada.CreditCards.com, the average Canadian has approximately 2 credit cards. Although this number seems to high, you’d be surprised how many people own credit cards, but don’t use them. In theory, 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 credit-card-debt-free. However, what a lot of Canadians don’t know is that not using your credit card could have serious effects on your overall credit score.

Understanding both the negative and positive sides of this equation is crucial if you want to ensure that your credit score remains high and your financial history looks good. If you’re inactive on your credit cards, here are 3 reasons why you should start using them:

1. You’re missing out on money-saving opportunities

Seventy-eight per cent 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 as an incentive to help you keep your credit cards alive, and making your monthly payments will show creditors that you know how to balance budgeting and paying back debt.

2. Your payment history matters to lenders

If you have no payment history on your credit card, 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 lead to better approval rates from lenders in the future.

3. You're at risk for high credit utilization

Lenders will often look at 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 impacts that it comes with.

There are a ton of 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 up-to-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.

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