Are you looking to improve your credit, perhaps to buy a home or car?
Using a credit card responsibly is one of the most effective ways to get an excellent credit score.
The good news is you can improve your credit without having to carry debt.
OK, let’s get started. Read on to discover how to build credit with a credit card.
How to Build Credit with a Credit Card
Using your card consistently and responsibly is one of the most effective ways to improve your credit score. Follow these guidelines to get the most benefits from your credit card.
Get the Right Credit Card
Before you apply for a credit card, it’s a good idea to check your credit score. This will give you a bigger picture of the different options that are available to you.
For example, if you have little or no credit, you may need to open a secured credit card account. Whereas if you’ve built up some credit, you may be eligible for an unsecured card with rewards.
Secured cards are very useful for establishing credit. Many will graduate you from secured to unsecured when you pay before the due date for a period of time.
Many secured cards don’t have annual fees and offer rewards. Here are three of the best-secured cards:
Have Minimal Credit or Looking to Rebuild Credit?
These unsecured credit cards have high acceptance rates with no annual fee.
- Capital One(R) Platinum Credit Card: Designed for those with minimal credit history.
- CreditOne Platinum Visa for Rebuilding Credit: Ideal for those looking for an unsecured credit card to rebuild their credit.
The interest rates on these cards are very high, an unfortunate drawback of most credit builder cards. To avoid paying interest rates, pay the balance in full each month.
Here are a few other options to help you find the perfect card for you.
Student Credit Cards
If you’re still in school, student credit cards offer a way to establish credit.
These cards have high acceptance rates because they realize students usually have a thin credit file or no credit.
Ask your bank if they offer a student credit card or shop the plethora of student cards online.
Credit Unions and Local Banks
If you already have a relationship with a local banker, you may be able to get a credit card with better rates.
Just make sure your bank reports payments to the credit bureaus. You want to know you’re being rewarded for your on-time payments with an improved credit score.
Many creditors pre-screen you for credit cards and send you pre-approved offers.
Despite their name, you still need to qualify in order to be approved for these offers. But the acceptance rate is generally high since the lender has already peeked at your credit file and determined you to be a good fit for their card.
Many times these offers are packaged with a promotional offer with better terms than someone else might receive who was not pre-screened.
Use Your Credit Card Responsibly
Once you get your card, use it responsibly and spend only what you can pay in full by the credit card’s due date. This is another time when keeping a detailed budget comes in handy. Know how much money you have at all times.
Responsible credit card use comes down to your mindset. As Dave Ramsey often says, “If you don’t have the money, don’t buy it!”
Learning how to build credit with a credit card is considerably harder when your cards have max balances. To prevent paycheck-to-paycheck living, keep your credit balance low. Or better yet, pay it off every month and avoid paying interest.
Pay On Time
Did you know your payment history makes up 35% of your FICO credit score? Clearly, paying on time is one of the most effective ways to get an excellent credit score.
- When you borrow money and make on-time debt payments, your credit score improves.
- If you’ve never made payments on a debt, you likely have no credit.
- If you have a history of late or missed payments, you have bad credit.
Pro Tip: Schedule automatic payments from your bank account to ensure you are never late and watch your credit score rise over time.
Keep Your Balance Below 30%
Here’s another big factor in your credit score.
Your credit utilization rate is responsible for 30% of your FICO score. This term refers to the ratio of your balance versus how much credit is available to you.
For example, if you have a $1,000 credit limit, and your balance is $200, your credit utilization rate is 20%.
Most experts advise you keep your credit utilization below 30%.
Even if you pay off your credit card in full each month, you may show an outstanding balance on your file.
This is because creditors typically report to the credit bureaus once a month. Your lender may report to the credit bureau before you’ve made your payment.
Call your lender and find out what day they report to the credit bureaus. Always make your payment before that date.
Lower your credit utilization rate by getting a credit increase. Let’s say you have a credit limit of $2,000 and you carry a balance of $800 each month. That’s a 40% utilization rate. But if your creditor raises your available credit to $4,000, then your $800 balance means your credit utilization is only 20%.
Never close a credit card account, even one with no balance. Doing so raises your credit utilization and often shortens the length of your credit history (another score factor).
Pay Off Credit Cards with Smaller Balances
As we’ve mentioned, it’s beneficial to pay your balance in full each month to avoid interest.
This is especially true for any credit cards with low balances.
That’s because your credit score factors in the number of accounts you have with outstanding balances.
Say you have a credit card you use all the time for gas and groceries and so on. You typically have a $600 balance.
You also have two other credit cards. One has a balance of $75 and the other has a $40 balance.
It looks more responsible to lenders that you have some credit cards which are paid off in full, and this is reflected in your credit score.
So primarily try to use one card and pay off cards with small balances.
Use Caution and Be Smart
Be smart when you’re learning how to build credit with a credit card.
Smart credit card use means making regular payments to improve your credit. You can snag rewards benefits and build good credit without incurring debt.
But if you already have credit cards with high balances, using a credit card probably isn’t the best way to get an excellent credit score. The same holds true if you have a tendency to overspend with your credit card.
In that case, it’s best to concentrate on paying down your credit cards, one card at a time. You’ll lower your credit utilization percentage and improve your overall financial health.
Are you looking to improve your credit score, and maybe even repair some marks on your credit report? Let us show you our easy 3-step credit repair service.
Coming Back from Terrible Credit (Where to Start)
Coming back from bad credit can be difficult because people don’t always know where to start. Good or excellent credit may be your goal, but to reach that higher score, there are certain steps you have to take.
If you want to see positive changes in your credit score, there are a number of things that you can do to start on your path to better credit.
Review your credit report
Consumers shouldn’t assume that the information reflected on their credit report is accurate and up-to-date. Reviewing your credit report will allow you to catch mistakes such as the balance on your credit card or the date your last payment was made on your personal loan account.
If you have questions or doubts about the information on your credit report, you can submit a dispute and have an investigation completed to confirm the information. If any information is inaccurate, it could be corrected or removed, and potentially increase your score.
Watch credit utilization
Your credit score is calculated using a variety of information about your finances and your money management skills. Credit utilization accounts for a certain percentage of your credit score and depending on your credit utilization, your score can increase or decrease.
It is recommended that all consumers keep their credit utilization at 30% or less. This means that if your available credit totals $1000, you don’t want to use more than $300 of that available credit. If you go over this percentage, you will likely see a drop in score, and the only way to change that would be to decrease your credit utilization.
Make on-time payments
Everyone has monthly bills that they are responsible for paying. Whether a payment is on time, missed or late, creditors can report this activity to the credit bureaus, which in turn will affect your credit score.
Avoid applying for new credit
Applying for a new credit account will result in a hard inquiry on your credit report. Each hard inquiry can take points off your score whether you are approved or denied, so you will see a significant drop if you continue to apply for credit. Before applying for a credit card, personal loan, or another type of credit account, consider your odds of approval and if applying is worth losing the points.
Pay down debt
The amount of money you owe is another piece of information that is used to calculate your credit score. Paying down your debt can be beneficial to you because you will owe your creditors less money, but you will also increase your score. Basically, the more you owe, the lower your score will likely be. But if you work on reducing your debt, you can easily see a bump in your score.
Unfortunately, it doesn’t take much to ruin your credit. And once it is ruined, improving your score can take some time. Making better choices about your finances is key, so as long as you actively work to improve your score and avoid making mistakes such as defaulting on student loans, filing for bankruptcy, or even making a late payment on your auto loan, you can see a positive change in your score.
Need help recovering from poor credit? Contact Credit Absolute today for a free consultation.
Why is it Important to Monitor Your Credit? (Top Reasons to Monitor)
A person’s credit scores greatly influence their ability to secure a home loan, rent an apartment, or open a credit card account. Yet, many consumers still fail to keep a watchful eye on their credit report.
Checking up on their credit report may not be a priority, but considering the effect that credit has on a person’s life, consumers have more than one good reason to monitor their credit.
Correct inaccurate information
It is common for people to have inaccurate information reflected on their credit report. Creditors can see a lot of information when they check a person’s credit, from the spelling of their last name to the current balance on a credit card account and the last time the bill was paid. However, if this information is inaccurate, the consumer will have to be the one to get it corrected to ensure the creditor will be able to make an informed decision.
One thing consumers can do is file a dispute. In doing so, the consumer is requesting that the credit bureau investigate the information that has been reported. Typically, within 30 days, the credit bureau can inform the consumer of the results of this investigation and whether the information is valid or needs to be updated.
Protect yourself against fraudulent activity
The number of identity theft victims within the US totaled 14.4 million in 2018, according to Javelin Strategy and Research’s 2019 Identity Fraud Study. If an account is fraudulently opened in someone’s name, this account will appear on that person’s credit report. Unbeknownst to the consumer, there is someone out their charging thousands of dollars to a credit card with no intention of paying the bill.
Depending on when a person views their credit report, they will be able to see that there is an open account that they didn’t actually open and take action. Alerting credit bureaus of this activity can get the information removed from the credit report, but people should also report this to the FTC and contact the police, as identity theft is a crime.
Avoid unnecessary hard inquiries
Applying for credit will result in a hard inquiry. One or two hard inquiries on a credit report may not impact a person’s score by a lot, but as the number of hard inquiries increases, a person’s score decreases. Luckily, someone who knows their credit score knows their odds of approval when applying for a personal loan, credit card or another type of credit account.
For example, if a lender requires a borrower to have a score of 650, and an applicant has a score of 600, the chances of denial are high. Should that applicant know beforehand that they do not meet the lender’s minimum credit score requirement, they would be able to find a more suitable option for their credit profile and avoid unnecessary hard inquiries.
Improve/rebuild your credit
Credit reports contain a lot of information about an individual’s finances and credit health. The information that is reported to the credit bureaus is what is used to calculate credit scores, and certain information can cause a person’s score to drop significantly.
When someone monitors their credit, this gives them the opportunity to improve it because they can see what activity is negatively impacting their score. Someone with high credit utilization will be able to determine that using their credit cards less will increase their score. Or that if they avoid applying for credit too often, no new hard inquiries will be listed and decrease their score.
Being in the know is important when it comes to a person’s credit score. Even if they don’t want to monitor their credit on a daily, weekly or monthly basis, obtaining a free credit report every year would still allow them to keep an eye on things and do what is necessary to maintain a healthy credit score.
Do IRS Installment Agreements Affect Your Credit Score? Find Out Here
Paying your federal taxes when they become due isn’t always an option. When you have other debts to worry about and money is tight, you have to consider all of your options. An IRS installment agreement is a solution to this problem, but some people may be hesitant because they aren’t exactly sure how it works and how it can affect their credit score.
If you can’t pay your taxes and are considering alternatives, here’s what you need to know about IRS installment agreements and how your credit score can be affected.
What is an IRS Installment Agreement?
When the tax due date rolls around, taxpayers are expected to have already paid their taxes or to make a payment that day. It is like any other bill that you have to pay, but making one lump sum payment is not ideal for those who simply don’t have the money. Paying the total amount due may not be possible that day, and avoiding this debt is out of the question, so an installment agreement is an affordable alternative that will allow taxpayers to take care of this debt.
An installment agreement is one option for those who need a bit of time to pay their tax debt. An installment agreement is an agreement between the IRS and taxpayers. This agreement gives taxpayers the chance to take care of their tax debt over an extended period of time and ensures the IRS receives the money that is owed.
The IRS will then automatically withdraw payments on the due date every month, or you will make manual payments on or by the due date every month.
Do IRS Installment Agreements Affect Your Credit Score?
Credit scores are calculated using information about your payment history, debt, credit history length, new credit, and types of credit accounts you own. Each of these categories counts for a percentage of the credit score, and depending on a certain activity, people may see a negative or positive score change.
For example, a missed or late payment on your student loan, a new credit card account, and even a denied personal loan application can negatively affect your credit score. An on-time payment or not applying for new credit will have a positive effect on your credit score. That being the case, it is important to avoid certain activities if you don’t want to see a drop in score.
As mentioned above, your credit report will list the debts you owe; however; not all debts will be included in your report. The information listed on a person’s credit report is submitted or reported by creditors, and the IRS does not report federal tax debt to the credit bureaus. This means that an IRS installment agreement does not directly affect your credit score.
Should You Apply for an IRS Installment Agreement?
There are disadvantages to an installment agreement, but the one advantage that makes this option so appealing to taxpayers is that they can pay off their debt over time with no effect on your credit score. If you cannot pay your federal taxes by the due date, then an installment agreement may be the best option you have that will ensure you get this debt paid off and avoid further penalties.
Bad Credit5 months ago
All you Need To Know about Bad Credit Scores in 2020
Bad Credit4 months ago
How to Get an SBA Coronavirus Disaster Loan
Bad Credit4 months ago
Bad Credit Payday Loans Online
Credit Repair Companies7 months ago
How to improve your credit score
Bad Credit3 months ago
Have Bad Credit? Here’s How You Can Still Get A Loan
Credit Repair Companies7 months ago
11 Ways to Improve Your Credit Score
Bad Credit6 months ago
Bad Credit? Best Bad Credit Mortgage Refinance Companies • Benzinga
Bad Credit8 months ago
Best Bank Accounts for Bad Credit