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My dad had always told me to get a credit card so I could start building my credit — so I applied for my first one when I was 19 years old.
Unfortunately, I didn’t take his other piece of advice: Pay off your card in full each month.
Instead, I quickly fell into the minimum payment trap, which meant I often carried large balances and only paid off what I could afford.
It was a dangerous cycle to be in, and by the time I broke it, I had paid thousands of dollars in interest.
It took two years to pay off every cent of that debt, and since then, I have learned a lot about how to use credit cards responsibly and still build up my credit scores. It’s a common myth that you have to carry a balance in order to boost your scores.
Instead, a lot of it comes down to when you pay your credit card bills (and how much you pay).
Understand your credit card statement
Before jumping into when and how much to pay, you should first understand how your credit card statement works.
Whenever you make a purchase with a credit card, the cost is added to your total balance owing.
Once a month, your credit card company should issue you a statement that outlines a handful of things:
- How much you charged to your card in this billing cycle.
- How much you still owe from your previous statement (if this isn’t $0, you’ll also be charged interest on the balance).
- The total balance owing.
- The minimum payment you must make – this is usually either a flat fee (for example, $10) or a percentage of the total balance owing.
Pay the balance on your statement, not the total balance owing today
The balance on your statement may be different from the total balance you owe today. That’s because you probably spent more money between the day that statement was issued and the day you received it.
For example, if your mailed statement was printed on the 1st of the month but you didn’t receive it until the 7th, it wouldn’t include any of the purchases you made between the 1st and the 7th.
This means that you could log into your account online and see a larger balance than the one on your statement. Don’t let that trip you up, or make you feel like you need to pay the total balance you owe today.
The way to avoid paying interest is to always pay off the full balance on your statement by the due date.
An added bonus? Doing this over time can help you build positive payment history and improve your credit health.
But that’s not all you need to consider. According to Heather Battison, former vice president of TransUnion Canada, “In addition to paying your bills on time and in full each month, it’s important to maintain a low credit utilization ratio — the amount of credit you’re using compared to your available credit limit.”
This is because credit utilization is one of the most important factors used to calculate your credit scores. If you carry a balance and have a high utilization rate, this can indicate to your lender that you’re spending more than you can afford.
According to the Financial Consumer Agency of Canada, you should try to keep your utilization below 35 percent of your total credit limit.
Never miss a payment
Your payment history is the most important factor when it comes to building good credit scores.
I use two credit cards and I know their due dates are on the 15th and 20th of each month, so I have a recurring reminder in my calendar that reminds me to pay them both online one week before the 15th.
By doing this, I know the payments will go through on time, and I don’t run the risk of going over the grace period (21 days starting the day before your statement is printed) and being charged interest.
When you should pay them will depend on which method you prefer to make your payments (for example, online, at the bank or by mail).
What’s important is that it’s your responsibility to understand the payment terms of your credit card accounts, and a late payment could have a negative impact on your credit scores — and stay on your report for up to six years or seven years.
Bottom line
At the end of the day, you could only make the minimum payments on your credit cards and maintain — or build — good credit health. But speaking from experience, I can tell you there’s nothing fun about paying interest and feeling like you’re stuck in a cycle of debt.
The best way to improve your credit health is to pay off the full balance on your credit card statement by the due date. This will help you build your scores, maintain your credit history and avoid interest charges.