Build Your Credit Score
Here are a few tips to build your credit score:
- Pay your bills on time: Successful payments are recorded in your credit report and contribute up to 35 percent of your credit score.
- Keep an eye on your credit utilization rate: Credit utilization rate, one of the biggest factors impacting your credit score, is calculated by taking the credit and loan balances you currently owe and dividing them by the total limits of your credit lines. The optimal is less than 30 percent. For example, if you have one credit card with a limit of $1000 and you currently owe $250, your credit utilization rate is 250/1000 . Two ways to keep your credit utilization ratio low are by keeping credit card balances low and extending your credit limits. Use both tactics when you are confident that you can manage your credit spending and payments carefully.
- Keep your credit card open: Even if you pay off the entire balance of your card, keeping a card open can extend the age of your credit card and of your credit history. The age of your credit, in turn, provides 10 percent of your credit score. But check the card’s terms and continue to monitor your monthly statements, just to be sure that there are no penalties attached to keeping a zero balance on a card.
Read And Check Your Monthly Statement Thoroughly
Read and check your monthly statement very carefully. Reconcile the transactions with the charge slips and invoices of the purchases made by you.
To be still safer, you can go online and check the statement once or twice a week. By doing this, you can prevent small irritation from becoming a larger issue. A timely call or an email to the credit card company for doing the necessary correction is much better than entering into a bigger dispute
Also you will do well to keep an eye out for the possibility of any mistake or error or fraud.
How Are Credit Cards Different From Other Cards
With a credit card, you essentially borrow money that youll pay back to your bank later. Heres how it differs from other types of payment cards:
- Debit card.The primary function of a debit card isnt to borrow money. Instead, you use it to spend money you have in a checking account.
- Charge card.With a charge card, you must pay your balance in full each month. This is different than a credit card, which lets you carry a balance from month to month.
- ATM card.This is a card you use at ATMs such as for withdrawals and deposits, and to check your balance. While you can withdraw money with a credit card, this counts as a cash advance that usually comes with high fees and interest rates.
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How To Use Credit The Right Way
When youre working to build or rebuild your credit history, how you use credit is everything. You must use credit the right way to build and maintain a good credit score. Unfortunately, credit cards dont come with a manual telling you how to use them responsibly.
You may have already learned the hard way about the devastating effects of credit misuse, but its never too late to start over. For those of you who haven’t yet begun building your credit, taking the time to learn good habits now will give you a financial advantage that you can benefit from throughout your life.
Aim To Pay Off Your Balance In Full Every Month
The money you owe on your credit card is called your balance. Try to pay it off in full by the due date each month. If you don’t pay your balance by the due date, you’ll pay interest from the date you made the purchase. The interest you pay will increase the cost of everything you buy with your credit card.
Paying your balance in full each month shows lenders that you are a responsible borrower. Regularly making late payments or missing payments entirely, will hurt your credit score.
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Will Credit Cards Improve My Credit Score
Firstly, itâs useful to know that you have more than one credit score. Lenders and credit reference agencies all have different ways of working out your score, and may take into account different information. Your credit score indicates how well you manage your finances, and it helps credit providers decide whether to approve you and what rates to offer you.
Managing a credit card responsibly â such as by making payments on time â can often improve your score, as it can show lenders youâre a sensible borrower. Whatâs more, some lenders may like to see that youâve been approved for a credit card before, as it can indicate that other lenders trust you to repay them.
But remember, credit limits are there for a reason, and too many credit cards with high limits could make lenders think youâre overly reliant on borrowed money. So, try if you can to keep the credit balance you owe across all your credit accounts below 25% of the total limit â the lower the better.
You can get a good idea of how lenders may see you by checking your Experian Credit Score â itâs free and the UKâs most trusted credit rating*.
Make Bigger Purchases When Prepared
Once you’ve established a habit of paying your bill in full, you’re better prepared to use your credit card for slightly larger purchases. Continue to keep your purchases low to ensure that you never use more than 30% of your credit limit. For example, if your credit limit is $100, don’t let your balance go above $30.
When you make a credit card purchase, put enough cash aside so you wont spend it before your bill comes. Then, when its time to pay your credit card bill, you already have the payment ready. In most cases, you won’t have to wait until the bill arrives. You can make a credit card payment as soon as a transaction is processed and added to your account balance.
After several months of using your credit card the right way, your creditor might increase your credit limit, allowing you to charge more on your card. Continue to stay within 30% of your limit, even as your limit increases. If you start using your credit card irresponsibly, your credit card issuer can cut your credit limit just as quickly.
If your credit limit is cut, then your existing balance will take up a larger portion of your limit, which could negatively affect your credit score.
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And Avoid Credit Card Debt At All Costs
Posted by | Jan 21, 2019Jan 21, 2019
But that reputation isnt always warranted.
The truth is, credit cards have a lot of redeeming qualities:
- security and convenience, and even
- help to rebuild your credit.
However, owning a credit card might not be for everyone.
If you dont use your credit card properly, you could definitely get yourself into trouble.
Irresponsible credit card use can lead to overspending, debt, and poor credit.
If youre hoping to get some valuable tips and tricks to use your credit card properly, here are some helpful reminders that could help:
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What Types Of Credit Cards Are Suitable For Beginners
These types of products are excellent picks for a first-time credit card:
- No-annual-fee cards.While youre learning the ropes of credit cards, its helpful not to have to pay an annual fee. You can use your card as much or as little as you want, without paying to maintain it.
- Secured cards.This is a strong option if you dont have a credit score yet. Because you must put down a security deposit, more lenders will be willing to accept you as a customer. As you slowly build your credit score, you can apply for better cards.
- Student cards.An excellent choice if youre currently enrolled in college. Providers are often willing to approve you even if youre new to credit.
What If I Cant Get A Loan
There are other ways to borrow money. Some people go to a payday lender. Some use the title to their car to get a loan. Some people pawn things.
These other ways to borrow are expensive. They almost always cost more than going to a bank, a credit union or a store. Some people have problems with debt after using these ways to borrow. The charges can be very high. It is hard to pay the money back and get out of debt.
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Stay Under 30% Of Your Total Credit Limit
One way to keep your credit score healthy is to keep your credit utilization ratio under 30%. This credit utilization ratio is the percentage of total available credit that youre using. For example, if your limit is $1,000 you should keep your balance under $300. But the ratio applies to the sum of all your cards so if one credit card has a $3,000 limit with a $3,000 balance and a second card has a limit of $7,000 with no balance, youre right at the 30% mark which is where you want to be.
Do You Want To Earn Rewards
A rewards credit card is a great way to earn cash back, points or miles on every purchase you make. You can maximize rewards by considering cards that offer bonus rewards in specific categories, such as gas, groceries, restaurants, entertainment and travel. If you rather have a simple rewards program, consider a flat-rate cash-back card, such as the Citi® Double Cash Card.
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What Is The Cost Of Owning A Credit Card
Owning a credit card isnt always free. There are several costs to watch out for, from the well-advertised to the non-obvious.
- Fees.The annual fee is typically the cost you see first. It commonly ranges from $0 to $550, but it can reach the $1,000 range and beyond. Youll also want to avoid foreign transaction fees, cash advance fees, overlimit fees and the like.
- Interest.If you dont pay off your balance by the end of your cards grace period, youll start accruing interest. Interest can snowball faster than you think, so consider paying your bill in full each billing cycle.
- Changes to your creditscore.If you keep high balances on your credit cards or, worse, miss payments your credit score will drop. This, in turn, will result in higher interest rates when youre ready to apply for loans. Over the long run, this can cost a lot.
Use The Credit Card As A Budgeting Tool
If youre confident you can use a credit card responsibly and pay off the balance every month, try using it as a budgeting tool. By making all of your purchases with your credit card, you can see exactly how much youve spent at the end of the month. Of course, you should only do this if you know you can pay off the balance each month. To make sure your credit card spending doesnt get out of hand, never charge more to your card than you have in your bank account.
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Report A Lost Or Stolen Card Immediately
Report your card lost or stolen if youâre missing your card or think someone stole your account number. When you do, your card issuer will deactivate your old card so no one else can use it. And you can tell the issuer if there are purchases on your account that you didnât make.
Many card issuers offer $0 fraud liability, which means you wonât have to pay for unauthorized charges if your card is ever lost or stolen and used without your permission. So be sure to report a loss as soon as possible.
If you lose your card or suspect that itâs been stolen, you may be able to lock your card to prevent it from being used. At Capital One, for example, you can instantly lock your credit card with just a few taps on the Capital One Mobile app. And if you find your card, you can unlock it just as easily.3
How Do I Compare Credit Cards
- What is the annual fee? This is what you pay to use the card for a year.
- What is the APR? APR means annual percentage rate. This is how much interest you pay every year. A lower APR means you pay less interest. That costs you less money.
- Are there other fees? How much will it cost if a payment was late? What will it cost if you go over your credit limit?
- What is the grace period? This is the time between when you spend money and when the card charges you interest. A longer grace period is better. Look for one that is at least 25 days long.
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Use A Credit Card As A Tool Not A Borrowing Mechanism
You can use your credit card to build credit, improve your credit score, manage expenses, earn points or cash back, and so much more. Itâs important to use your card at least once every month as you try to build credit, but make sure youâre making purchases you can pay off at the end of each month. When you carry a balance over to the next billing cycle, youâll pay interest, and it can also negatively impact your credit score if youâre using too much of your . Instead of using your credit card as a means to borrow money, think of it as a purchasing tool with different types of benefits. Since credit cards have much higher interest rates than other means of borrowing, you can end up owing far more than youâve borrowed.
Avoid Credit Card Fees
There are a lot of fees that can be charged. Become familiar with the fees your credit card company may charge you by reading the Credit Agreement either in the statement or online.
Some of the fees you may see are:
- Balance transfer fees
- Returned payment fees
- Foreign Transaction fees
Many credit cards are available that do not charge an annual fee or a foreign transaction fee. If you decide to apply for a card that does charge these fees, consider if they are worth it to you.
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Watch Your Credit Score
Credit card companies must report your credit history correctly. The reason is that your credit history can impact your life in a lot of ways so you want to have a high credit score.
You may not know that there are companies that use your credit score to evaluate how much you pay for insurance, the interest rate on your mortgage, and the cost of other financial obligations.
Before applying for any type of loan , be sure to check your score. is a that will allow you to check your credit score for free every month.
Pay At Least The Minimum Amount You Owe
If you cant pay your balance in full, always aim to pay at least the minimum amount you owe.
If you don’t pay at least the minimum payment, you risk:
- your interest rate increasing
- negatively affecting your credit score
- losing the benefit of any promotional rate offer you have
- your financial institution cancelling your credit card
- your credit card balance insurance being cancelled by your credit card provider
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Stay Below Your Credit Limit
Only use the credit you really need. Better yet, stay well below your credit limit.
Why? Your credit scores could be affected by your âhow much of your available credit youâre using. And the lower your credit utilization ratio, the better your credit score might be. In fact, the CFPB recommends using no more than 30% of your credit limit.
Using Credit Cards Responsibly
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