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5 tips on how to put your credit card to better use

  1. Select the card that's best for you
  2. Build a good credit report
  3. Avoid paying interest
  4. Use your card wisely
  5. Accumulate reward points

Credit cards can be friends or foes, depending on how you use them.

Used wisely, credit card can be useful in more ways than one. Being careful and thinking ahead is the right attitude to have when using credit.

Keeping a handle on credit is often simply a matter of not giving in to impulse purchases.

First and foremost, select a credit card that's best suited to your needs and not your credit limit aspirations. This way, you greatly lower the risk of finding yourself owing more than you can repay.

Many financial institutions and countless retail stores offer credit cards. Make your selection wisely on the basis of your income, number of dependents, spending habits, etc.

Also, make sure you fully understand the interest rates and terms of use that come with each card.

For example, don't let yourself be tempted by the gifts or promotions offered by retail stores when you apply for their credit cards. These cards usually have much higher interest rates than those of financial institutions.

Finally, having a maximum of 2 credit cards will help you build a good credit report.

When you pay for your purchases with a credit card, getting into the good habit of paying your balance in full each month will allow you to build a good credit report and a solid credit score. This will come in handy when the time comes to borrow more substantial amounts, such as to buy a home.

A credit score is like a grade given to you by credit-reporting agencies to describe your credit payment history. The more you make your payments on time, the higher your credit score.

A good credit score ensures you'll have a good reputation with financial institutions, while a bad credit score can hurt you in a number of ways, starting with any important loan you might need.

Tools and tips

Understanding your credit report

Find out exactly what kind of information it contains and how it affects you.

Read tip - Understanding your credit file

Obviously, no one can foresee everything, and life always brings unexpected expenses. Credit cards are a good way to meet these little emergencies right away, so long as you pay your credit card balance in full by the due date or earlier.

This way you reduce to a minimum any interest charges incurred by your transactions, and save a lot of money in the process.

There is, however, an even better way to pay for unexpected expenses.

Tools and tips

Build an emergency fund

Understand this key component when making your budget.

Read tip - 3 steps to drawing up a monthly budget

In addition to being a tool to build your financial reputation, credit cards can be handy, if not essential, when you need to rent a car, reserve a hotel room or buy show tickets.

Don't use it, however, for impulse purchases. Protect yourself from your own emotions. When the urge strikes to buy a particular item, ask yourself the following question: Would I buy it if I had to pay cash for it?

Also remember that the same rule applies regarding paying your account balance: Pay it in full by your statement due date.

While you're at it, why not combine business with pleasure?

Some credit cards offer reward points towards the purchase of goods and services and even RRSPs.

Ask our financial institution about it.

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