One of the best and quickest ways to establish credit is by using credit cards. It can be challenging to be granted a credit card in the first place if you're rebuilding your credit or beginning from scratch. And once you do have a credit card, it's simple to ruin it and make it worse than it was before, particularly if you don't know how to manage your credit cards properly. Fortunately, good credit card management isn't difficult to learn. You may improve your credit score and have a more promising financial future.
Check your credit rating
Your credit score will determine the kinds of credit cards you qualify for. Therefore, knowing your credit score before applying for credit cards will help you choose the appropriate ones. One of the many credit card companies, including Discover, provides free credit monitoring services to everyone who registers, regardless of whether they are cardholders. The FICO credit score, which is used by the majority of lenders, is provided by Discover's service. The program allows you to view your current credit score. Your score can be categorized as follows, according to Experian, one of the three main credit agencies that gather and assess consumer credit data:- Outstanding: 800-850
- Excellent: 740–799
- Good: 670–739
- Fair: 580–669
- 300-579 1 Extremely poor
Recognize the Elements of a Credit Score
There are various components that make up your credit score, and each one has a different impact. The following factors, according to FICO, affect your credit score:- Payment history: 35%
- Total amount owed: 30%
- Credit history duration: 15%
- 10% additional credit
- 10% credit percentage
A secured credit card is an option
A secured credit card is an alternative if you have poor credit or no credit. Nearly everyone can access these, but there is a catch. To open the account, you must make a refundable deposit, which is often in the range of several hundred dollars. The deposit typically doubles as your credit limit. All cardholders should appropriately handle their credit card balances. For owners of secured credit cards, this careful use is especially important. Errors or lapses can become very expensive very quickly due to the high interest rates and substantial fees that sometimes accompany credit cards. Any part of your credit score can be improved by opening a secured credit card and using it responsibly. For instance, if you pay all of your bills on time, you'll have a history of timely payments. You can establish a long credit history if you leave your card open for a long enough period of time. Secured credit cards frequently include higher interest rates and other fees not found on regular credit cards. However, they are legitimate credit cards that can aid in establishing credit worthiness. If you want to save money, you might think about shutting down your secured card once your score is high enough to get approval for better cards (your deposit will be refunded if your account is paid in full). Even after a certain period, the issuer of your secured credit card could provide an invitation to upgrade to an unsecured credit card and return your security deposit.Refrain from getting too many credit cards
Especially with the benefits and exclusive offers for in-store financing, it can be tempting to sign up for numerous credit cards. Although there is nothing wrong with opening many credit card accounts, there are no clear-cut guidelines for how many cards are excessive. But eventually it gets to be more work than it's worth to manage many accounts. Don't open a new credit card if it may encourage you to spend more money than you have, or if you might forget to make the payments for the new card along with the others. Your credit won't be helped at all by these items. Additionally, any new card you open will appear on your report as an inquiry, which might lower your score for up to a year.Always be on time with your payments
Your ability to make payments on time has the biggest impact on your credit score. Your credit score can be significantly impacted by just one late payment. Even worse, even though the damage will eventually fade, the mark will remain on your credit report for seven years. The good news is that by resolving to always make your payments on time, you may absolutely avoid missing any payments. Setting up autopay on your credit card account to make at least the monthly minimum payment is one approach.Maintain minimal balances, or better yet, none
How much debt you have, particularly in relation to your available credit, is the second-biggest factor affecting your credit score. The credit usage ratio is a simple calculation that compares the total balances on all of your credit cards to the total amount of credit you have available. Consider that you had two credit cards with a combined $5,000 limit. Because your combined balance is $5,000 and your combined limit is $10,000, if you have a balance of $1,500 on one and $3,500 on the other, your credit usage ratio is 50%. The majority of credit experts suggest keeping your credit utilization ratio under 30%. The less the better, and the ideal would be to pay off all of your balances and have no outstanding credit card debt. By simply charging what you can afford to pay off each month, you can do this. To keep your spending in check and prevent any unexpectedly large expenses at the end of the month, you can also make a number of smaller payments throughout the month. Your credit score will increase as a result, and if you pay your bill in full each month, you won't be charged interest. Consider splitting your monthly credit card payment into two or more smaller payments. First, by lowering your debt, the bank will report less to the credit bureau, which will slightly raise your utilization percentage. Second, by lowering daily balances earlier in the billing period, you can reduce the interest you pay since financing costs are frequently computed based on the average daily balance.Hold onto your previous credit cards
Although it plays a very small role in calculating your credit score, the length of your credit history is nonetheless significant. Credit-scoring models will consider the average age of all of your accounts when calculating this factor. Because of the timeframe calculation, you can maintain a lengthy credit history that will raise your credit score by keeping your oldest credit cards open. Your credit history will be shortened if you close those old credit cards, which could lower your score. Of course, there are situations in which it makes sense to keep an old credit card open. You should close it if it has a large annual charge and you are no longer using it. And you should definitely close that old credit card if it tempts you to resume some bad spending habits from the past.Save money for emergencies
People frequently rack up credit card debt as a result of unforeseen events in life, which makes it simpler to charge the costs to a card and pay them back later. However, for many people, "later" never actually comes because they are constantly faced with unforeseen bills that are added to their existing debt. Due to this use, your credit card balance will increase, worsening your utilization ratio and lowering your credit score. Having a separate emergency fund is the most effective way to end this pattern. This way, you have the option to use your credit card to pay for emergency expenses if you'd like (especially if doing so will earn you rewards), but you can also use it to pay the charges off quickly and avoid getting into a debt cycle.Credit Can Be Built With Credit Cards
It's risky to use credit cards to establish credit. If you use it wisely, you can improve your credit and get access to areas that were previously closed to you. However, it can hurt your credit score even more if you aren't very adept at managing your credit cards. You'll be well on your way to a better credit score if you're honest with yourself about your ability to utilize credit cards responsibly.