5 Helpful Tips To Build Good Credit With A Credit Card
Figuring out credit cards can be daunting, especially if you’re a beginner. But a good credit score is essential if you want to get a loan or a mortgage in the future. If you’re feeling a little stuck, here are five tips to help you build good credit with a credit card.
1. Pay your bills on time and in full
Making purchases and paying on time is the best way to build a good credit score. It shows creditors that you’re responsible with money and can handle debt. If you pay off your credit card bill on time and in full it proves that you can stick to payment deadlines. Soon you will get credit cards with bigger rewards.
You have a twenty-one day grace period in which to pay off your credit card bill interest-free but you should pay it as soon as it arrives. You then lessen the risk of paying late.
If you don’t pay the bill in full you will lose the grace period and instead owe interest when you make a purchase. If you’re worried about keeping track of your bills, set up a direct debit before the due date and you won’t have to think about it again.
2. Keep utilization under 30%
Creditors look at your credit utilization because the more you spend the higher the risk. It signifies that you might be going through financial difficulty, and for lenders who are expecting that money back, it rings alarm bells. So if you use your credit too much it can damage your good credit score.
The best way to keep building those good points is to be sensible with your spending. Ideally, keep it under 30% but stick to between 1% to 10% just to be safe. The lower the utilization rate, the higher the chances of you achieving a good credit score.
3. Open a card and stash it away
Keeping your credit utilization at 1% is better than 0% but if you want to start building good credit with minimal effort, open an account but don’t use your card. If you have an open account that you don’t use, creditors will see that you have available credit. It will show that your credit utilization is low and that you’re not partial to unsustainable spending.
Ideally, if you want to build good credit quickly then you should be using your card a little to demonstrate that you’re responsible with money. But if you want to gain a good score and you don’t trust yourself not to overspend then having your credit card locked away is a good choice.
4. Pick the right credit card for you
If you’re new to credit cards or made mistakes in the past then you won’t have a good credit score. You won’t be able to get credit cards with good rewards yet as you will need to earn the creditors’ trust.
Choose your credit card carefully. Start with a card that is designed for people with bad credit and work your way up.
If you’re indecisive and apply for several different credit cards it won’t go unnoticed by the issuer. Every time you apply for a credit card they will check your credit score and this can knock points off. If you apply for more than one it may signify that you’re in financial trouble and you will be rejected.
5. Treat it like a debit card
Keeping track of bills can be daunting. It’s easy to get into the habit of thinking that the credit on your card is free money until you have to pay it back. Instead of falling into that trap and ending up spiralling into debts you can’t afford to pay, treat your credit card like a debit card.
Create a budget for yourself and stick to it so you know how much is available to spend. It won’t then come as a nasty surprise when you get your bill at the end of the month.
