While building credit is an important aspect of your financial health, it is all too easy to place damage to your credit if you do not get it right, especially when using a credit card.
There is a big difference between no credit history and a bad credit history and how it affects your credit score. You can also qualify for a mortgage without a credit card. So don’t jump into building credit too quickly if you know you lack the self-control to do it responsibly.
But if you are ready and want to build your credit using a credit card, these four steps will help you do so responsibly and effectively.
Limit the number of cards you have
You do not need more than one credit card. This also applies to gas cards, save cards and another type of credit card. A credit card is all you need. If you have too many credit cards it reflects poorly on your credit report. In addition, while it can be tempting to open a credit card store (hello, discounts!) These might not be the best choice when trying to build credit.
For one, they bring a very high interest rate. Stores know that the majority of people do not pay off the balance in full every month, which means that they make much more in the interest of than they offer you in savings. And we all know that it can be tempting to spend money if you don’t have a sale. Don’t tempt yourself. Instead, stick with a low-interest credit card with no annual fees and a small credit limit when you are trying to build up your credit. Bonus if you find a card that offers good rewards, such as cash back or travel offers, that can save you money in the long run.
Keep Your Credit Limit Low
When you first start using credit cards, it can be tempting to use a card with a high credit limit. If a credit beginner, you don’t want to do this. Stick with a credit card with a lower credit limit, such as $ 500- $ 1,500. This will help you stay on track and not get out of control with your expenses. It will also help you pay off the balance in full every month, which is the goal when trying to build credit using a credit card.
You can call and ask that your bank does not automatically raise your credit limit. This will keep you from getting into too many debts, giving you the option to pay off the balance in full each month. If you focus on repaying these lower amounts, you should be able to build your credit fairly easily and in the process.
Pay off your balance in full each month
You build your credit history and show that you are responsible for paying your monthly payments on time, every month. By staying within your budgeted amounts on all your expenses, you should be able to do this.
You can prevent carrying a heavy debt by simply never charging anything that you cannot pay money. This is the most important thing you can do to show that you can manage your finances and build your credit history.
Keep the amount of your used Credit Low
Using a large amount of your credit or almost all of your available credit will make your credit score fall. If you carry a balance for a few months, make sure you keep the used balance to a maximum of 30% of your available credit limit.
If the balance is inches higher than this, (and especially if it reaches the limit), you can see your credit score drop. It is important to keep this in mind as you use your credit cards to improve your credit score.
Avoid the free offers that come with Credit Card Applications
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You can be offered free pizza, t-shirts and numerous other gifts for applying for a credit card. You may think that you are signing up to get something for free or something you want won’t hurt. Plus, you can just cancel that card later, right? Not really. Every time you open a credit card, your credit score can take a hit. Your credit score can also get dinged if you have opened too many credit cards. Plus, canceled cards do appear on your credit report. So save yourself the trouble by simply not applying. This saves you time and money in the long run.
- Another option is to consider using a prepaid credit card. This gives you the chance to handle your money responsibly and shows that you are ready to apply for a credit card with a line of credit after a few months.
- You need to be sure you are financially ready to handle a credit card before you apply for one. This means that you will be able to stick to your monthly budget, and that you know that you will be able to pay it off completely each month.
- It is important to realize that credit cards are not bad. However, they can easily be poorly managed, and if you don’t handle them properly you can end up in a lot of financial trouble. If you know that your credit card is not being used responsibly, it is best not to have it at all.