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A breakdown of the top credit card mistakes to avoid in order to maintain good credit.

Credit cards aren’t just a convenient way to make payments and pocket rewards—they also play a pivotal role in formulating your credit score. Next to your annual income, your credit score is one of the most important measures of your financial life and can affect your chances of being approved for everything from car loans and rental applications to a mortgage, not to mention the interest rate you pay on these debts.

The higher your credit score the more lenders trust you, and the more lenders trust you, the better rates, products, and offers you will receive. It’s as simple as that. So with that in mind, here’s a breakdown of the worst credit card mistakes to avoid in order to maintain a good credit score.

Ten Worst Credit Card Mistakes

1. Cancelling Your First Credit Card

If you’re like many Canadians, your first credit card was a student card that you got in university before you had much choice. But as you build credit, your options broaden, and you might find yourself not using that old college card as much anymore. Resist the urge to close that account! Your first credit card and the length of your credit history are closely entwined so cancelling it can be one of the worst credit card mistakes you make.

If you’re a student looking to kickstart your credit history, consider adding the CIBC Dividend® Visa* Card for Students to your wallet. This card gives 2% cash back on eligible grocery purchases, 1% cash back on eligible gas, transportation, dining purchases and recurring payments, and 0.5% cash back on everything else. There’s also no limit to the total cash back you can earn, and it has no annual fee.

†Conditions apply

Learn more about the CIBC Dividend® Visa* Card for Students.

2. Ignoring the Interest Rate

Legal jargon and run-on sentences, all laid out in 6-point font? It’s not called the fine print because folks love it. Still, it’s important to understand the terms of your credit card to avoid ugly surprises come billing day. Be aware that many credit cards carry a similar purchase interest rate of around 20%, but there are also loads of excellent low-interest credit cards available in Canada.

For instance, the HSBC +Rewards™ Mastercard® offers a rock bottom interest rate of 11.9% — one of the lowest in Canada. Moreover, there’s no annual income qualifier, the $25 annual fee is very affordable, and you earn rewards for every eligible purchase charged to the card.

Learn more about the HSBC +Rewards™ Mastercard® Credit Card.

3. Missing Payments

Credit cards are essentially short-term loans by a friendlier name. Every time you use plastic to pay for something, you’re using borrowed money to foot the bill — money that you’ll have to pay back within a specific time frame. How reliably you do this has a direct impact on your creditworthiness. In fact, estimates suggest that your payment history accounts for a whopping 35% of your total credit score, making it the single most important determining factor. Don’t miss a payment. Be prepared to pay at least the minimum amount each and every month.

4. Making Only Minimum Payments

That being said, do not only make minimum payments. Doing this will balloon your debt, getting you deeper into the red and making it increasingly difficult to pay off your debt. If you find yourself unable to pay down your outstanding debt, a good strategy is to transfer your credit card balance to a low-interest card with very low or no monthly interest on balance transfers.

5. Overspending

If you have a credit card, you know that overspending is super easy and super bad. What you might not know is that it can negatively affect your credit score. Aside from being hit with costly interest charges, carrying credit card debt can affect your credit utilization rate. Credit utilization refers to how much money you owe relative to how much you can borrow, and if you’re regularly carrying a balance, your utilization rate will be high. If you’re accumulating debt, consider getting a balance transfer credit card or consider a debt consolidation loan. For instance, with LoanConnect, you can get online quotes from a variety of lenders, with interest rates starting at 4.6%. That’s a heck of a lot less than paying the typical 19% in credit card interest!

Learn more about Loan Connect

6. Maxing Out Your Card

Wait, didn’t we just talk about this? No, we did not. While you might overspend and max out your credit card, the very act of spending close to your limit (whether you’ve budgeted for it or not) can increase your credit utilization rate. This signals that you’re over-leveraged and borrowing too much. If you’ve maxed out your credit card, do what you must to pay off your debt as soon as possible. If approaching your limit is a regular occurrence, ask for a credit increase.

7. Loaning Out Your Card

It can be tempting to loan out your card, particularly if it means you can double dip on rewards or cash back. Bad idea! You’re responsible for paying the bill—not the person to whom you loaned the card. This goes for loans of your primary card and additional cards on the same account. Unpaid debt can be a real hit on your credit score. Unless you’re prepared to pay for all the purchases, never loan out your card.

8. Failing to Get Rewards or Cash Back on Your Spending

This mistake won’t hurt your credit score, but it will affect your wallet. Credit card companies court your business by offering valuable rewards. A little shopping around should net you a healthy kickback in the form of travel rewards, program points, or cold, hard cash back on spending you’d be doing anyway. If you’re a travel junkie, get yourself one of the best travel rewards credit cards in Canada. Or if you prefer a loyalty program, think about adding one of the best Aeroplan credit cards or Air Miles credit cards to your wallet.  If cash is king, use a cash back credit card and earn money back on card purchases.

And don’t forget to look for the best credit card deals and welcome promotions, where you can earn big with annual fee rebates, program points, time-limited boosted rates, or extra perks. For instance, the TD Cash Back Visa Infinite* Card is offering a welcome offer of 6% on all purchases for the first 3 months (up to a total spend of $2,000), and you get a first-year full annual fee rebate for the primary and first additional cardholder on the $120 annual fee. Conditions apply, and you must apply by May 30th, 2021 to take advantage of this fantastic limited-time offer.

Learn more about the TD Cash Back Visa Infinite*.

*This offer is not available for residents of Quebec. For Quebec residents, please click here.

9. Applying for Too Many Cards at Once

Once you’re hip to the possible rewards available with credit card spending it can be easy to get carried away. If you’re considering getting a bunch of cards with different rewards simultaneously – don’t. This is one of the worst credit card mistakes you can make because each application affects your credit score. The impact is small for each card but can add up with multiple inquiries and can also signal to creditors that you’re having a financial problem. Instead, try to space out your applications and really think about how many credit cards should you have.

Additionally, the annual fees on multiple cards add up fast. Your best bet may be to carry one or two credit cards with decent rewards or cash back like the BMO® CashBack® World Elite®* Mastercard®*. This card has a fantastic promo right now: new cardholders get up to 10% cash back in your first 3 months (up to $2,000 in total purchases) and the $120 annual fee waived in the first year*. After the promo ends, you can earn 1.5% cash back on all card purchases* – with no caps or category limits. If you don’t like paying an annual fee, you can also check out The Best No Annual Fee Credit Cards in Canada.

Learn more about the BMO® CashBack® World Elite®* Mastercard®*

10. Not Carrying a Credit Card At All

With all these caveats, you might think that carrying a credit card is just too risky, but not carrying a credit card is one of the worst mistakes you can make. It prevents you from building a credit score, and without that, you’ll have a very hard time getting a loan, buying a car, or securing a mortgage. Start your search with our list of the best credit cards in Canada.

Final Thoughts

A credit card that’s paid off regularly provides lenders (such as banks) with proof that you can be trusted with money. The longer you possess your credit card and use it wisely, the higher your credit score will be. And, if you follow our tips, you’re sure to maximize the benefits of credits cards—like rewards and cash back—while minimizing any costly mistakes.

If you have bad credit, it’s not game-over. One option is to get a card for bad credit, and by using it responsibly, improve your credit score over time. For instance, the Refresh Financial Secured Card doesn’t require a credit check or a co-signer, meaning getting approved is essentially guaranteed. Refresh Financial makes monthly reports to the TransUnion and Equifax, so if used responsibly, you could see your numbers increase in as little as 30 days. If you’re just not quite sure where to start, consider Score-Up by Marble Financial. This tool is designed to help you boost your credit by analyzing your score and giving you actionable advice on what you can do to improve it.

Still baffled by credit ratings in Canada? Read more about What Affects Your Credit Score?

Conditions apply

Insurance coverage(s) included with CIBC credit cards are underwritten by Royal & Sun Alliance Insurance Company of Canada. You may contact the insurer at 1 866 363-3338 in Canada and the U.S or collect from elsewhere at 905 403-3338 or visit cibccentre.rsagroup.ca. Some insurance coverage(s) require purchase(s), common carrier fares, accommodations and other trip costs to be charged to the card to activate coverage. Other conditions may apply. For important information regarding coverage, eligibility requirements, benefits, pre-existing health/medical conditions, limitations and exclusions, see cibc.com/ca/credit-card/agreements-insurance.html and the insurance certificate(s) in your card package.

Article comments

Laura says:

Great list. Another is not accpeting credit limit increases – as long as you don’t spend the money! Having more credit extended to you and a lower percent used will improve your credit score

Arash says:

Well, I think yes and no. By accepting the limit increase offer, you have increased the chance of over-budget spending and making it harder to pay off the debt. It very depends on your personality. For those who are paying off a big debt, it’s better to keep their credit card limit as low as their life needs.

Abraham says:

Agreed, but you’re adding individual behaviour to the equation. The fact is, decreasing your credit utilization by increasing the CC limit, will improve your credit score. Credit utilization is said to be around 30% of your credit score calculation.