Staying Strategic With Credit Cards
Its 2021. After some fluctuations, my credit score is finally goodmeaning Ive crossed the 670 threshold.
I now have five credit cards, including some I only dreamed about, like the American Express® Gold Card, the Chase Sapphire Preferred® Card and the Discover it® Cash Back. Ive gone beyond just making on-time payments. Im keeping my utilization low to raise my score. Im collecting rewards in the top points programs and juggling multiple cards to earn higher rates on all of my different kinds of purchases.
I dont think Ill be getting any new cards for a while. All the ones I have serve a purpose. Theyre a mix Ive created for my specific spending patterns.
Ive come to the conclusion that credit cards are like pills for your financial health. If you know what youre doing and follow whats in the prescription, your credit and budget will be well. If not, side effects may include credit card debt and financial distress.
So, I keep following the prescription: Only apply for a credit card that you really need, keep your balances low and always pay on time.
My credit is healthy and so is my budget.
Hard Hits Versus Soft Hits
Hard hits are credit checks that appear in your credit report and count toward your credit score. Anyone who views your credit report will see these inquiries.
Examples of hard hits include:
- an application for a credit card
- some rental applications
- some employment applications
Soft hits are credit checks that appear in your credit report but only you can see them. These credit checks don’t affect your credit score in any way.
Examples of soft hits include:
- requesting your own credit report
- businesses asking for your credit report to update their records about an existing account you have with them
Know Your Credit Score
First things first. When youâre building or rebuilding your credit, it may be helpful to know a few things: What exactly is a credit score? Whatâs considered a good credit score? And how does your credit score work hand in hand with your ?
Here are some quick basics about your credit score:
- Itâs a three-digit number. Most scores range from 300 to 850.
- Itâs based on information in your credit report. That information can include things like your payment history, how many credit accounts you have and whether youâve applied for new loans.
- Lenders use your score as a quick measurement. For example, it can tell them how likely you are to repay your debt on time.
It may also help to know that you actually have multiple credit scores. Each is calculated using a different scoring model. Scoring companies like FICOÂ® and VantageScoreÂ® even have different versions of their own scores. So you might see slightly different scores depending on what model was used.
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Why Using A Credit Card Responsibly Is The Best Way To Build Credit
- Dont Have to Cost You a Thing: There are plenty of no annual fee credit cards for people with no credit or bad credit. And credit building doesnt require making purchases. Even a will help you. Thats key because loans will generally force you into debt.
- Report Monthly to Credit Bureaus: All major credit cards report information to the three major credit bureaus on a monthly basis, usually at the end of your billing cycle. This gives you the opportunity to quickly establish credit history from scratch or reduce the impact of previous mistakes. You just have to pay your bill on time.
- Pretty Easy to Get: The easiest credit cards to get, which are generally secured cards, offer nearly guaranteed approval. You just need to be at least 18 years old with enough income or assets to make monthly minimum payments. In other words, there isnt much standing in the way of you building credit.
Verify The Contents Of Your Credit Reports
Review each of these reports thoroughly, verifying the following details are correct on each:
- Details on payments made on time
- Debt payment history
- Balances due of accounts open currently
- Number of closed accounts
- Personally identifiable information is identical across all reports complete name, address, SSN, date of birth, etc.
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What Is The Easiest Credit Card To Get Approved For
The easiest credit card to get approval for is a secured credit card. These cards require a refundable security deposit for approval and may not even ask for a credit check during the application process.
For most secured cards, your deposit amount will equal your credit limit. For example, a $300 deposit will net you a card with a $300 credit line. You can use a secured card as you would an unsecured card to make purchases in person or online, to rent a car or hotel room, pay bills, or make any other purchase.
Your deposit will not serve as a payment on your account. Youll have to repay at least the minimum balance due on your card each month with interest. Meanwhile, the cards issuing bank will hold your deposit as security until you close your account.
Your deposit acts like the security deposit you make when you rent an apartment. If the home is in good shape when you move out, the landlord will refund your money. If you trash the place, the landlord will keep the money to cover any repairs.
The same goes for your secured card. If you have no outstanding credit card debt when you close your account, the bank will refund your deposit in full.
These cards are easier to obtain because your deposit acts as security and reduces the banks exposure to risk.
First Progress Platinum Elite Mastercard Secured Credit Card
Do you prefer a credit card with a low APR? If so, you should get this one. It offers an average APR of 13.99%. That is why you will not have to pay higher interest charges. The annual fee is $39. It means that you will not have to pay a lot of money in annual fees either.
You need not require any credit history for approval. You can complete the application process online as well. The secured credit card ensures that the approval process is pretty simple. Depending on the deposit, you can get a credit line anywhere from $200-$2000.
The 24/7 online account access ensures that you can monitor your spendings quite easily. When you apply for this credit card, you will not have to worry about any impact on your credit score.
Thus, if youre looking for a secured credit card that helps you build credit and has an easy application process, you can go with this one.
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Best Small Business Credit Card For Building Credit
If you thought that building personal credit was tough, youve likely never tried to build business credit. Any entrepreneur knows the hassles and hurdles that come with proving your businesss viability and responsibility.
If you still cant qualify for an unsecured business credit card, consider a secured card to help you get your feet wet while establishing a track record of financial success for your business.
Try A Secured Credit Card
You may try a secured credit card to start building credit on your own. With a secured credit card, you make a cash deposit to a bank or financial institution to establish a line of credit and then use the card to make purchases up to that limit. When you pay the bill each month, the bank will report your payment activity to the three credit bureaus, Equifax, TransUnion, and Experian, which will each establish a in your name.
If the bill ever goes unpaid, the bank can keep your deposit. If you pay on time consistently, you should eventually qualify for a non-secured card and may even be upgraded by your bank.
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Refresh Financial Secured Card
When you have bad credit, its nice to be able to apply for a credit card that guarantees approval, regardless of what your credit score is. And thats exactly what youll get with the Refresh Financial Secured Card. Since the card is secured, youll be responsible for making a security deposit that will act as your credit limit. No credit is extended to you, so any money you spend on the card will be money you already have.
Theres no credit check involved, and youll receive your credit card shortly after filling out a short application. Plus, youll be granted a 21-day grace period during which interest fees on outstanding purchases will be waived.
- Guaranteed approval
- Emergency card replacement and cash advance
Ways To Build Good Credit Once You Have Your First Credit Card
Using a credit card smartly is one of the best and most effective ways to build your credit history and develop excellent credit scores. Click here for guidelines on establishing a credit history so you can get that first card.
Once you do get that first credit card, you’re going to want to use it strategically in order to build your credit history and achieve high credit scores. Here are five key steps:
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Unsecured Credit Cards To Rebuild Credit
Obtaining an unsecured credit card does not require a deposit. Thats good and bad good because unsecured cards dont tie up your money, but bad because they are harder to get approved for.
Within the unsecured credit universe, the following cards make it their business to approve applicants with bad credit.
You can prequalify for the Indigo® Platinum Mastercard® Credit Card in seconds without damaging your credit score. The card is less expensive to own than some competitors due to its lack of fees for initial setup, first-year cash advances, and monthly maintenance.
You can get this card from Celtic Bank in several different designs at no extra cost. If the issuer cannot match you to this card, it may prequalify you for a credit card from another bank.
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What Is Your Credit Score Used For
Lenders may look at credit scores to help them make loans and credit decisions and may also play a role in being approved or denied for apartment rentals, home loans, phone lines, student loans, credit cards and more. In addition to being used for approvals or denials for applications, your credit score may also determine interest rates and credit limits when it comes to regular credit cards and personal loans.
Use A Secured Credit Card
Another way to build or rebuild your credit is with a secured credit card. This type of card is backed by a cash deposit you pay it upfront and the deposit amount is usually the same as your credit limit. You use it like a normal credit card, and your on-time payments help build your credit.
Impact: Varies. This is likeliest to help someone new to credit with accounts or someone with dented credit wanting a way to add more positive credit history and dilute past missteps.
Time commitment: Medium. Look for a secured card that reports your credit activity to all three major credit bureaus. You may also consider looking into alternative credit cards that don’t require a security deposit.
How fast it could work: Several months. The goal here is not just having another card, although that can help your score a bit by improving your depth of credit. Rather, your aim is to build a record of keeping balances low and paying on time.
Keep An Emergency Fund
People often fall into credit card debt because lifes surprises pop up, and its just easier to put the expenses on a credit card and pay them off later. But for many people, later never really happens, because emergencies keep popping up, and those new expenses join the old ones on the credit card. This use causes your credit card balance to swell, which makes utilization ratio worse, and that leads to a lower credit score.
The best way to break this cycle is by keeping a separate emergency fund. That way, you can use your credit card to cover the emergency costs if you wish , but you can also pay off the charges right away and stay out of the debt cycle.
Open A Business Bank Account
Get started on separating your business finances from your personal finances by establishing a business bank account. Setting up this type of account will also help you get a business credit card and begin building a relationship with a banking partner that may be beneficial down the road if you need a small business loan to grow your operations.
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Will Paying The Minimum On My Cards Improve My Credit Score
No. This is a widespread myth. You need to pay at least the minimum payment due on your credit card every month so that your cards have an on-time payment history. You do not have to pay a single cent in interest to improve your credit score. In fact, paying your credit card balances in full every month will have the greatest positive impact on your score, because it will improve your credit utilization percentage.
Using Credit Cards Strategically
While a credit card can provide numerous benefits when used strategically, it can also lead to high interest charges, increasing debt and a negative impact on your credit if youre not careful with how you use it. Here are a few best practices to help you keep your budget and financial health on track.
- Make your payments on time. Your payment history is one of the major factors that influences your credit. If you make your monthly payments late, it can negatively affect your credit scores, and youll likely be charged a late fee.
- Pay your credit card bill in full and on time each month. Paying off your balance in full and on time can help you avoid incurring high interest charges. If you cant pay the entire statement balance, pay as much as you can and be sure to make at least the minimum payment on time.
- Buy only what you can afford to pay for with cash. This can help you avoid overspending and help you stick to your budget each month.
- Stay well below your credit limit. Your the ratio between the total balance you owe and your total credit limits on all your credit cards is one of the criteria used to calculate your credit scores. Typically, a low ratio has a favorable impact on credit scores, while a high ratio has a negative impact. Aim to keep your credit utilization ratio below 30%.
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Pay Your Credit Card Balance In Full
If you’re only charging what you can afford to pay, paying off your full balance each month won’t be a problem. Paying off your balance each month shows that you’re capable of paying bills, something creditors and lenders want to see. Since a large part of your is based on the timeliness of your payments, paying your balances on time improves your credit.
Paying your full balance each month also helps you avoid racking up credit card debt.
Length Of Credit History Problems
The older your credit history, the better from a credit score perspective. FICO considers your average age of accounts, the age of your oldest account and the age of the youngest account on your credit report.
In general, you must be patient and let your accounts grow older over time to see improvement within this credit score category. But theres one potential way to speed up the process.
A friend or relative can add you to an existing credit card as an authorized user. Many credit card issuers will report authorized user accounts to the credit bureaus. If the account has been open for a while, it may help your credit score when it shows up on your credit report. But be careful. If the account has any negative payment history or a high credit utilization ratio, it might hurt your credit score instead.
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Pay Credit Card Balances Strategically
The portion of your credit limits you’re using at any given time is called your . A good guideline: Use less than 30% of your limit on any card, and lower is better. The highest scorers use less than 7%.
You want to make sure your balance is low when the card issuer reports it to the credit bureaus, because that’s what is used in calculating your score. A simple way to do that is to pay down the balance before the billing cycle ends or to pay several times throughout the month to always keep your balance low.
Impact: Highly influential. Your credit utilization is the second-biggest factor in your credit score the biggest factor is paying on time.
Time commitment: Low to medium. Set calendar reminders to log in and make payments. You may also be able to add alerts on your credit card accounts to let you know when your balance hits a set amount.
How fast it could work: Fast. As soon as your credit card reports a lower balance to the credit bureaus, that lower utilization will be used in calculating your score.