Money Myths – Part 4

Every day there seems to be new advice popping up on how to manage your finances. From credit score education to consumer proposals, there is a lot of information available online. This is the fourth part of a five-part series on Money Myths – common misconceptions Canadians have about money.

Money Myth 4: Holding a credit balance is good for your credit.

Fact: I actually believed this was true until I did some more research on the topic. Lenders and bureaus alike are not looking at your balance – they are looking for a responsible history of on-time payments.

Think about it… responsible payments could mean simply making the minimum payment. But paying only the minimum balance will eventually lead to a maxed out credit card, which will lead to damaged credit. Not only that, but you’ll be paying interest on your purchases for as long as they sit there!

(On that note, have you ever seen the statement “If you only pay the minimum balance, you will pay this bill off in 10+ years”? Crazy!)

So what is the best strategy? Use your credit card for regular purchases such as groceries or gas. When you get home, pay that bill off immediately! This demonstrates to lenders that you are utilizing your credit, but you are also responsible with it.

The important thing to remember here is that credit cards are best used as a tool, not a crutch. Like our Secured Savings Loan, a credit card is one item that can be used to improve your credit when used responsibly. When you start using it for things you ‘want’ rather than ‘need’, your balance will start to rise, and it will be hard to get out of the cycle of minimum payments and lots of interest.

Of course, you can always take the guesswork out with a Refresh Secured Savings Loan (and if you’re reading this, you probably already are!) By removing the ability to spend and focusing on growing your savings, you can build your credit without having to worry about increasing your debt in order to do so.

Stay tuned for the final part of our series on Money Myths!