Hello York University! We’re back for round two of our YU Money Smart Series, where you tell us what questions you have about all things financial, and we provide some advice and guidance to help guide you! In the video posted above this blog, there were many comments and questions around Credit Cards.
By the sounds of things, there is trepidation around having a credit card (and getting into trouble with that card). First things first: be sure you know just what you’re taking on by using credit – and the different types there are. Credit is great, but like anything – it comes with responsibility. Improper use can put your credit score into a stickier situation than you’d like. At RBC, all students are required to sit down with a banking advisor to go over the “do’s and don’ts” of credit use, and that is something I encourage all students to do – speak to a financial professional about it.
Maintaining a strong credit score will help you later in life as goals change from paying for education to buying their first car, starting a business or buying their first home. It’s our job to help people understand how using credit responsibly can help them down the line. Many students get their first credit card when they begin post-secondary education, so this is the time to educate them on responsible credit use.
Myths & Realities of Credit Scores
- Myth: Asking for lower limit on any credit product will help your credit rating.
Reality: Lenders like to see a big gap between your available limit and the amount of credit you're actually using. Apply only for the credit you need and use it responsibly. While it’s best to pay off your balance in full each month, you should always make the minimum payment.
- Myth: Carrying a balance will help your credit score
Reality: Paying your full balance is the best way to have perfect credit, but you will also have perfect credit if you pay at least your minimum balance each month. In your online banking, there is a feature that will alert you of the balance coming due and will automatically pay the minimum. If you haven’t already, I suggest you set that feature up!
- Myth: Applying for a lot of different credit cards doesn’t affect your credit score.
Reality: Applying for a lot of different credit cards can hurt your credit score, so don’t apply for a card for the free swag that comes with it – it could end up costing you more in the end.
- Myth: There is no harm paying your bills late as long as it only happens occasionally.
Reality: Missing even one bill payment can negatively affect your credit rating – this includes your mobile phone, internet and credit card bills.
- Myth: In Canada, your credit rating is affected by your age, income and gender. The higher a person's income, the better that person's credit rating will be.
Reality: Your credit rating is based on your record of managing your finances responsibly. Lenders look at how you handle your financial obligations, such as whether you pay your monthly bills on time, carry a balance, or regularly miss payments.