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Using your Credit Card Responsibly

How to use a credit card responsibly?

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Tips when using your credit card

When you use your card, you are borrowing money that you have to pay back. It does not increase the amount of money you have available. Your credit spending should fit within your regular household budget.

If you don’t use the facility wisely, you may end up:

  • building up debt
  • paying interest
  • hurting your credit score

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Aim to pay off your credit card balance in full every month

The money you owe  is called your balance. Try to pay it off in full by the due date each month. If you don’t pay your balance by the due date, you’ll pay interest from the date you made the purchase. The interest you pay will increase the cost of everything you buy with your credit card.

Paying your balance in full each month shows lenders that you are a responsible borrower. Regularly making late payments or missing payments entirely, will hurt your credit score.

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Pay at least the minimum amount you owe on your credit card

If you can’t pay your balance in full, always aim to pay at least the minimum amount you owe.

If you don’t pay at least the minimum payment, you risk:

  • your interest rate increasing
  • negatively affecting your credit score
  • losing the benefit of any promotional rate offer you have
  • your financial institution cancelling your card
  • your  balance insurance being cancelled by your credit card provider

Regularly check your credit card statement for errors

Carefully review your monthly credit card statement to make sure that there are no errors.

When you check your  statement online, purchases will usually appear after a few days. Keep receipts of all your  purchases so that you can check the amounts against your statement.

If you find an error, report it right away. Contact your bank or other financial institution that issued you the credit card.

Keep your personal information confidential

Keep the following information confidential:

  • your card
  • the personal identification number (PIN)
  • your password for online transactions
  • the card security code, also known as the CVV number located on the back of the car

If you share your PIN or card security code, you may be held financially responsible for unauthorized transactions.

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Warning signs that you’re overspending

If one or more of the situations below apply to you, you may be living beyond your means:

  • your balance keeps growing
  • you’re using all of your available credit
  • you carry a credit card balance from month to month
  • not making a payment or only making the minimum payment on your bill
  • you take out cash advances with your credit card

If you often find yourself in one of these situations, do the following:

  • stop using your credit card, if possible
  • avoid applying for a new card because you’ve reached your credit limit on other cards
  • look at your budget for ways to trim spending
  • if you have to use credit, consider other less expensive credit options

You may be overspending if your balance keeps growing or you’re using all of your available credit.

Learn more about making a budget to control spending.

Consider getting help if you’re having trouble making payments or you have to use your card to pay bills.

Consider other credit options

You should look for other ways to borrow money that cost less in interest if you’re having trouble paying off your lending facility.

Other credit options that may have lower interest rates than standard options include:

Article From: Financial Consumer Agency of Canada

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Credit Report – Understood

What to look for on your Credit Report?

While reviewing a Credit Report, a lot of the information could look abstract and very difficult to understand. It is quite common for consumers to either willfully or by lack of knowledge, ignore many key details on the report. Lenders use codes to send information to the credit bureaus about how and when you make payments.

These codes have two parts:

  • a letter shows the type of credit you’re using
  • a number shows how good your payment history is

You may see different codes on your credit report depending on how you make your payments for each account

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Breaking down Letters on the Credit Report

The Letters Used

There are typically 4 types of credit and 4 letter codes to specify each one of them:

  1. Revolving or Recurring Credit (R): In this case the creditor allows you an amount of money that you can use on an ongoing basis. As a consumer, you use an amount and after you pay that amount, you can use it again. Use-Pay-Use-Pay. It revolves. There is no term. A minimum payment would be required on the due date. A good example would be a credit card or a line of credit.
  2. Installment Credit (I): Here, you would be granted a certain amount for a fixed period of time – along with a predetermined payment that comes from a predetermined interest rate. Once the loan is payed off, you would need to apply again to have access to that same amount again. A good example would be getting car financing or a bad credit car loan. 
  3. Mortgage Loan (M): This is also defined as installment credit in some cases. It refers to a mortgage that the creditor is granting for the purchase of a home. In this case, terms are defined differently. You have a total amortization period, and a number of terms within that. Essentially, if you have a 5 year term & 20 year amortization – your payment is calculated for the first 5 years and renegotiated for the next 5 year period.
  4. Other or Open Status Credit (O): The money is borrowed when needed. An example could be telephone bills or utility bills, overdraft etc.
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Breaking down the Numbers on the Credit Report

 

0
  • Too new to rate
  • Approved, but not yet used
1
  • Paid within 30 days of billing
  • Pays as agreed
2
  • Late payment: 31 to 59 days late
3
  • Late payment: 60 to 89 days late
4
  • Late payment: 90 to 119 days late
5
  • Late payment: more than 120 days late, but not yet rated “9”
6
  • This code isn’t used
7
  • Making regular payments using one of the following debt management options:
    • a consolidation order
    • orderly payment of debts
    • consumer proposal
    • debt management program with a credit counselling agency
8
  • Repossession
9
  • Written off as a “bad debt”
  • Sent to collection agency
  • Bankruptcy

It is very important to understand that when a lender determines a late status, it is always in reference to your payment due date. In order for an account to be R2 or I2 the consumer must not have made a payment 31 days from the due date. 

For example:

  • If you have a credit card account that you paid on time, it’ll be reported as “R1”
  • Should you have a line of credit, and you missed a payment by 45 days, it’ll be reported as “O2”
  • If you have credit card debt and you’re being contacted by a collection agency for payment, it’ll be reported as “R9”

The best rating is 1. Any number higher than 1 will likely hurt your credit score.

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Financial information on your credit report

Your credit report may contain the following financial information:

  • non-sufficient funds payments, or bad cheques
  • chequing and savings accounts closed “for cause” due to money owing or fraud committed
  • credit you use, including credit cards, retail or store cards, lines of credit and loans
  • bankruptcy or a court decision against you that relates to credit
  • debts sent to collection agencies
  • inquiries from lenders and others who have requested your credit report in the past three years
  • registered items, such as a lien on a car that allows the lender to seize it if you don’t make payments
  • remarks, including consumer statements, fraud alerts and identity verification alerts

Your credit report contains factual information about your credit cards and loans, such as:

  • when you opened your account
  • how much you owe
  • Whether you made your payments on time
  • if you missed payments
  • Whether your debt has been transferred to a collection agency
  • if you went over your credit limit
  • personal information that’s available in public records, such as a bankruptcy

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Checking for errors on your credit report

Checking for errors on your credit report

Why check your credit report?

A Credit Report is a summary of all the Trade Lines or credit Relations you have undertaken with all the registered Financing Institutions.

A Trade Line is created at the moment you are first granted credit from any of the registered financial institutions. Also when you apply for credit for the first time a Credit Report will be created even if you are not accepted for credit – this will list only an inquiry, but not a trade line.  

Financial Institutions or Lenders will send information about your accounts to the credit bureaus, also known as credit reporting agencies. A Credit report is a collection of all the dealings/trade lines you have had with any said financial institutions. It will show how good or bad you have managed your credit. If the Lender is reviewing a file and the information showing turns out to be incorrect, then decision would be conducted with faulty information. If there’s an error on your credit report, a lender may turn you down for credit cards or loans, or charge you a higher interest rate. You may also not be able to rent a house or apartment or get a job.

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Apart from errors creating the basis for an unsatisfactory dealing and result, the errors could also be a sign that someone is trying to steal your identity. They may be trying to open credit cards, mortgages or other loans under your name.

It is for the above mentioned reasons that we believe that Credit Reports should be checked regularly. A yearly check might be a good decision.

What errors could be on your credit report

Once you get your report, check for:

  • name, address, date of birth, employer and occupation.
  • errors in credit card and loan accounts, such as amounts, balances, payment amount, date open etc.
  • negative information about your accounts that is still listed after the maximum number of years it’s allowed to stay on your report
  • Make sure you are aware of all the trade lines existing there. If you see a RBC card and you never had a dealing with RBC, it is time to worry. Chances are these accounts would be in arrears.

Keep in mind that negative information does not disappear from your credit report because you paid it off. The negative information stays there for some time. Checking these trade lines would be the way to inform yourself on what might have been negatively affecting you.

Look for accounts that don’t belong to you on your credit report. Accounts that you don’t recognize could mean that someone has applied for a credit card, line of credit, mortgage or other loan under your name. It could also just be an administrative error. Make sure it’s not fraud or identity theft by taking the steps to have it corrected.

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Steps if Fraud Suspected

If you find an error on your credit report, you should contact lenders and any other organizations that could be affected. Tell them about the potential fraud.

If it’s fraud, you should:

The Canadian Anti-Fraud Centre is the central agency in Canada that collects information and criminal intelligence on fraud and identity theft.

If you are certain that the information is wrong then we strongly suggest that add a Fraud Alert (warning) in your Credit Reports. A fraud alert, or identity verification alert, tells lenders to contact you and confirm your identity before they approve any applications for credit. The aim is to prevent any further fraud from happening.

Ask the credit bureaus to put a fraud alert on your credit report if:

  • you’ve been a victim of fraud
  • your wallet has been stolen
  • you’ve had a home break-in

You may need to provide identification and a sworn statement to prove that you’ve been a victim of fraud.

Your Rights

You have the right to dispute any information on your credit report that you believe is wrong. Additionally, you can ask the credit bureaus to correct errors for free. Always support your case by gathering receipts, statements and other documents related to your credit accounts. This is since you may need them to prove your claim. Crucially, you need to report to both Equifax & Transunion, since different lenders use different platforms. Before the credit bureau can change the information on your credit report, it will need to investigate your claim. First, it will check your claim with the lender that originally reported the information. If the lender agrees that there is an error, the credit bureau will update your credit report. However, if the lender disputes your claim – and instead suggests it is correct, the bureaus will leave your credit report unchanged.

The second step would be to contact the lender that reported the information. It will not be an easy process and you need to understand that the Lender will require a lot of things in order to believe your claim. They will have to compare the information they have and the one you are suggesting to them. Importantly, you should ask to speak with someone at a higher level at the credit bureau or at your financial institution if you’re not satisfied with the results of the investigation.

 

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Complaints

Federally regulated financial institutions must have a complaint-handling procedure to help resolve disputes between consumers and their financial institutions. This procedure includes a third-party dispute-resolution body.

Assuming that the credit bureau confirms the information is accurate but you’re still not satisfied, you can submit a brief statement to your credit report explaining your position. It’s free to add a consumer statement to your credit report. TransUnion lets you add a statement of up to 100 words, or 200 words in Saskatchewan. Equifax lets you add a statement of up to 400 characters to your credit report.

Lenders and others who review your credit report may consider your consumer statement when they make their decisions.

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