What Are Credit Reporting Cards?

Credit reporting cards – credit cards that report cardholders’ activity and account to the two national credit bureaus1 like TransUnion and Equifax. These cards are your best option for improving your credit score and building your credit. They can help a card owner better manage their credit daily. The trick to building excellent credit is establishing a good credit history of timely payments and a low credit utilization ratio. You can use a credit reporting card regularly and as often as you need to, as long as you’re not exceeding your credit limit or avoiding making regular payments. Also, see Credit Cards Reporting Credit Explained.

How Credit Reporting Cards Work

The best thing about credit reporting cards is that they can help users build credit. Credit card issuers typically report your spending activity and account standing to the Canadian credit bureaus. Based on the information in reports, the bureaus create credit reports of users and set rules for determining credit 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 credit card could be hard if you’ve never used one or had credit before. The same goes for people with a bad or poor credit score. Thankfully, there are solutions out there.

Secured cards

Secured credit cards – the best credit-building tools for people with bad/poor credit or no credit history. A secured card might be the best solution if you’re just starting your credit journey and struggling to establish decent credit. Secured credit cards work like regular credit cards with one difference – cardholders make a security deposit with the card issuer to become eligible for an account. Although secured credit cards come with hefty fees, they offer an array of rewards and benefits that can help you develop a good credit card usage routine.

Student cards

Student credit 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.

Becoming an authorized user

Another great way to improve your financial standing and build a good credit score is to have someone appoint you as an authorized user on their credit card. Every time a credit issuer reports their account to the credit 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 credit score and make it easier to get approved for an unsecured credit card2 in the future.

How Credit Reporting Cards Help You Build Credit

Credit 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 credit reporting card.

Make timely payments

Paying your bills on time is a surefire way to build a good credit score. Credit bureaus and issuers pay special attention to your spending behavior and financial management. Your payment history is the core element of your credit 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.

Avoid maxing out your credit card

How you use your credit limit also matters for your overall credit score. Credit issuers and bureaus favor cardholders with low utilization rates. Your credit limit usage is another vital element that impacts your credit. The credit limit and balance on your report determine your credit 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.

Frequently Asked Questions

Reference Index

  1. Financial Consumer Agency of Canada. Canada CA
  2. Secured Cards vs Unsecured Credit Cards. CNBC