Depending on how you use them, credit cards can make or break your credit score. If you choose a card that fits your spending habits and financial needs and use it wisely, you can quickly build your credit.
Improving your score or building credit from the ground up may seem overwhelming, but it just takes a little time and effort to develop responsible habits. CreditMantri offers a few ways your credit card can benefit your credit.
1. Pay On Time And In Full
A credit score is a mathematical measure of how an individual handles debt. This number is important because it indicates your creditworthiness and the likelihood you will repay what you borrowed. To get a good credit score, you must pay your bills on time.
Timely payments made in full are especially important for credit card bills. That’s because the card provider sends your payment record to the three major credit bureaus. Besides that, it also ensures you don’t pay extra from interest.
Payment history accounts for 35% of your credit score. Routinely using your credit card and paying your whole monthly bill on time will go a long way to improving your score.
2. Treat Your Credit Card Like A Debit Card
Since your bank account doesn’t reflect the transactions, it’s easy to forget that you’re using real money when you swipe your plastic. But when you get your credit card statement later and don’t have enough in the bank to cover the bill in full, that money suddenly seems very real.
Using your credit card the same way you would a debit card can keep you from spending more than you should. It keeps you grounded about your budget and finances, making it easier to stay on top of monthly payments and prevent interest from accruing.
3. Keep Your Credit Utilization Ratio Low
Your credit utilization ratio is the second biggest component of your credit score next to timely bill payments — making up about 30% of it. Consequently, you want to take your credit utilization seriously.
Credit utilization is the percentage you owe relative to your entire line of credit. Lenders look at this factor to determine the likelihood that you will overborrow or not make your monthly payments. A low credit utilization ratio — 30% or under — is ideal.
4. Leave Your Old Credit Card Accounts Open
Lenders look at your credit history to determine your creditworthiness. Conventional wisdom says that the earlier you get a credit card (and use it wisely), the better chance of having good credit. That’s because credit history accounts for 15% of your credit score.
You don’t want to close old credit card accounts or repeatedly open new ones because it shortens your credit history’s average age and lowers your score.
5. Don’t Open Too Many Credit Card Accounts
The generous signup bonuses most credit card companies offer can be tempting. Although there’s nothing wrong with have several credit cards, frequently creating new accounts can be detrimental. Not only is managing multiple cards a pain but every time you apply for a new one, it can impact your credit score.
If you struggle with impulse purchases or have difficulty remembering when to pay each card’s statement, you shouldn’t get another. It will only make managing your finances harder.
6. Compare Offers And Find The Best Card For You
If you are looking for your first credit card or have a shaky credit history, finding reasonable offers can be difficult. Lenders typically only provide credit cards with the best perks to those in good credit standing. But, that doesn’t mean you can’t get a credit card — you just need to look a little harder.
There are many cards for those with little or bad credit. Secured credit cards are one option; with these, the bank holds a deposit or an asset as collateral for a set term in exchange for a credit line. If you make timely payments throughout the period, the lender will return your deposit and offer a chance for an upgraded credit card.
Credit cards for those with less-than-ideal-credit may not be the ones you want, but they are an excellent first step toward getting a better deal. Just keep in mind that when you apply for a new account, the credit card company conducts a credit check, causing your score to drop. If you submit several applications in a short timeframe, lenders will think you are desperate for credit and reject your request.
- Creditmantri. “8 Smart Ways To Use A Credit Card Your Build Credit Score.” CreditMantri, CreditMnatriCreditmantri, 16 Sept. 2020, www.creditmantri.com/article-8-smart-ways-to-use-a-credit-card-your-build-credit-score/.