What Are Reporting Cards?
Cards that report cardholders’ activity and account to the two national bureaus1 – TransUnion and Equifax are called credit reporting cards. These cards are your best option for improving your score and building your credit. They can help a card owner better manage their credit daily. The trick to building an excellent score is establishing a good history of timely payments and a low utilization ratio. You can use a reporting card regularly and as often as you need to, as long as you’re not exceeding your limit or avoiding making regular payments. Also, see Cards Reporting Credit Explained.
How Credit Reporting Cards Work
The best thing about credit reporting cards is that they can help users build credit. Card issuers typically report your spending activity and account standing to the Canadian Bureaus. Based on the information in reports, the bureaus create credit reports for users and set rules for determining scores. To use a card to build credit, you must either apply for a credit card or ask someone to make you an authorized user on their card. However, getting approved for a card could be hard if you’ve never used one or had credit before. The same goes for people with a bad or poor score. Thankfully, there are solutions out there.
Secured cards – the best credit-building tools for people with bad/poor scores or no history. A secured card might be the best solution if you’re just starting your credit journey and struggling to establish decent credit. These cards work like regular cards with one difference – cardholders make a security deposit with the card issuer to become eligible for an account. Although secured cards come with hefty fees, they offer an array of rewards and benefits that can help you develop a good card usage routine.
Student cards – are the best way to start building healthy credit early on. Although these cards typically have low spending limits, they offer a few benefits, such as rewards on purchases, and come with few fees.
Another great way to improve your financial standing and build a good score is to have someone appoint you as an authorized user on their credit card. Every time an issuer reports their account to the Bureaus, your name will appear on the report. Additionally, you get your own card and can start building your credit according to the agreement with the primary cardholder. If the primary cardholder uses the card responsibly, they can help you with your score and make it easier to get approved for an unsecured card2 in the future.
How Credit Reporting Cards Help You Build Score
Cards offer several options for building credit – it all comes down to how you use yours. Here are the two best ways to harness the power of a reporting card.
Paying your bills on time is a surefire way to build a good score. Bureaus and issuers pay special attention to your spending behavior and financial management. Your payment history is the core element of your score. It’s a critical factor for credit bureaus. A credit card can help you establish an excellent payment history, but only if you make regular monthly payments. We recommend paying the minimum balance every month, although it would be best if you could pay your bill in full.
Missing due dates exposes you to additional charges, fees, and penalties, such as losing promotional or introductory interest rates, late fees, etc. Thankfully, modern technology allows you to ensure you never miss a payment. Check with your credit issuer if your account has the option to set up autopay. Even if you make a late payment, it’ll still negatively affect your credit report and hurt your credit score.
How you use your credit limit also matters for your overall score. Issuers and bureaus favor cardholders with low utilization rates. Your limit usage is another vital element that impacts your credit. The limit and balance on your report determine your utilization ratio. Maintaining a low balance is the only way to keep your utilization ratio at a minimum – the lower the utilization, the better the credit. The most effective way to lower your utilization rate is to pay down the balance before your statement period ends.