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How to Use Credit Cards to Build Credit in Canada

Renting an apartment, buying a car and getting a loan all require one important number: your credit score. Whether you’re just starting out or already working toward a goal, learning how to build credit with a credit card can help you achieve your financial dreams. Here’s what you need to know.

April 30, 2021 in Learn

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What does “credit history” mean?

Your credit history is a record of your borrowing and repaying of debts. Banks and other financial institutions often look at it when they’re considering whether to lend you money via a credit card, loan, line of credit, mortgage or any other type of credit product.


It’s not the same as your credit score, which is a number calculated using the data in your credit history — your credit score gives a quick snapshot of how credit-worthy you are based on your overall borrowing experience. You may have also heard the term “credit rating,” which is similar but not the same as your credit score; this letter grade is usually given to businesses and governments to rate their creditworthiness.


Having a good credit history can help you successfully borrow money in the future and reach your financial goals.

Factors that can affect your credit history

A number of things can have an impact on your credit history, including the following.


o Payment history: When you pay your bills on time regularly, lenders and creditors can see that your financial habits are consistent and reliable. This is one of the strongest indicators that you’re someone they can lend to with confidence.


o The length of your credit history: The amount of time you’ve had access to credit is another important factor that can affect your credit history. First, lenders will want to see how long ago you got your first credit account, and when you opened your most recent credit account. They’ll then calculate the average age of all your accounts together. In general, the longer your credit history is, the more positively it can impact your credit score.


o Credit mix: Creditors typically factor in a combination of different forms of credit to determine your score. They’ll look at how you’ve paid everything from credit cards to installment loans to mortgages. Having too many different types of accounts, or not enough, can negatively impact your credit score.


o Debt-to-credit ratio: Having a lower debt-to-credit ratio — meaning that the amount of credit you’re using is lower than the total credit available to you — is often seen as a good sign by creditors. If you’re using all of your credit cards right up to their limits, you might be juggling too much debt, and that might negatively affect your credit score and make creditors unlikely to loan you any more.


o New credit: If you’ve opened a lot of new accounts recently, potential creditors might flag you as a higher-risk borrower and avoid extending more credit to you.

Why building your credit is important

Having a solid credit history and a good credit score is important as you move through life. It allows lenders to assess whether or not you’d be a good borrower — and that could impact whether you can achieve your financial (and personal) goals.


If you have a good credit score, you’re more likely to qualify for loans or to get more favourable loans that have lower interest rates and terms and conditions that fit your style. For instance, a good credit score can help you land a great mortgage rate when you buy your first home, an important milestone in your financial life.

How to use credit cards to build credit

Using a credit card and paying off the balance in a timely manner can help establish your track record as a good borrower, and this could make it easier for you to take out loans in the future. There are a variety of ways to build credit with credit cards: consistently using less than your credit limit, using your card to make regular purchases, paying off the balance in full every month and using a secured credit card are all excellent ways to work toward building your credit score.

Secured vs. unsecured credit cards

When you’re looking for a credit builder card, you’ll likely come across secured and unsecured options and wonder what exactly the difference is. Here are the basics.


o Secured credit cards require a security deposit in order to receive a credit limit (which is often equal to the security deposit). Secured credit cards are also generally easier to apply for if you don’t already have a stellar credit score. Using a secured credit card to build credit is a good way to get started, especially if you don’t have a long credit history.


o Unsecured credit cards do not require a deposit. Generally, unsecured credit cards have stricter requirements when you’re applying. For example, you may need to have established a solid credit history already. Unsecured credit cards may be a better choice if you already have a strong credit score — and they can have great benefits, such as cash back on purchases or travel rewards, that fit your lifestyle and spending habits.

Best practices for building credit with your credit card

When you’re using credit cards to build credit, there are a few things to keep in mind.


o Make purchases with your credit cards regularly to build your history. Check your transaction records often to keep track of how much you’ve spent and pay off the purchases at the end of the month.


o Use less than your full credit limit. It makes your bills easier to repay and shows any future creditors that you have a lower debt-to-credit ratio, which can demonstrate that there is less risk in lending to you.


o Make sure you’re paying your bills on time to avoid late fees and penalties. If you clear the balance on your bill in full every month as well, you’ll be demonstrating that you’re able to consistently and successfully repay debts.

How to find the best credit builder card for you

Finding the perfect credit builder card is a little like finding the perfect pair of jeans: It’s all about the fit. American Express® has a whole range of options to choose from, and each Card has different, exciting features. From Membership Rewards®–enrolled Cards (which let you earn points on eligible purchases, like food and gas, and put them toward rewards, such as travel and gift cards1) to Cards that give you cash back, there’s an ideal option that will help you build your credit and get what you want.


Explore all American Express Cards to find the option that suits your financial needs and goals best.

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