A lot of attention focuses on the negative aspects of using credit cards. There is undeniably a risk that comes with credit card use, but only if you don’t use them correctly. The truth is that a credit card can be your best friend or your worst enemy, depending on how you use it. If you are prudent, pay off your balances in full every month, and don’t think of them as an ATM, then credit cards can be a really great way to manage your finances.
Not only do a lot of credit cards offer cash-back bonuses or incentives for use, but they also can be an excellent way to boost your credit score. Why are credit scores so important? Your credit score determines not just how much you can borrow when you want to make a major purchase; they also determine the interest rate that you can get.
If you manage your money correctly and use credit cards wisely, then they can have a very positive effect on your credit score and can help you to build some good credit Winnipeg history. That will save you big in the long run. So, how do you use your credit cards to boost your credit score? There are specific things that you can do to make credit cards work for you to help increase your credit score.
Always pay on time
Not many people know that as much as 35% of your credit score rating is determined by your payment history. It is the single biggest factor that determines your overall score. Your payment history is a record of how you pay your bills. It’s a reflection of your responsibility and ability to pay your debts, and it has a huge impact on your credit score. If you are going to use credit cards, it is imperative that you pay on time every month and never miss a payment. That will also keep you from incurring a costly late fee.
When you are issued a credit card, the company that backs it will give you an automatic “limit” that you can use. That limit is the amount of money that you can put on your credit card. If you go over that amount, it will adversely affect your credit. In fact, the next biggest factor in determining your credit score is something called your “credit utilization.” That is the amount of the credit issued that you are using. To boost your credit score, aim to use less than 10% of the credit that you have on all your credit cards combined.
Technically, your credit utilization is the measurement of how much credit you’ve used against how much you have been issued. The more credit you are using, the lower your credit rating will be. That is why it is okay to have a lot of credit issued, but always try to stay at less than 10% of your maximum to show that your risk of overspending is low.
Don’t close your accounts
One of the biggest mistakes that people make is to close out their credit card accounts. When you close accounts, you don’t increase your credit score, as most people think. You actually reduce your amount of available credit. And if you carry any balances, that will increase the amount that you are using. Keep the cards open without using them to boost your score.
Only apply for cards when absolutely necessary
If you are carrying a credit card with a very high interest rate, then it is smart to try to apply for a lower rate to switch balances. But don’t apply for a credit card unless you have to. When you apply for a credit card, the card issuer does a “hard pull” or “hard inquiry.” That puts a negative mark on your credit score. The more hard pulls you have, the lower your score will go. So don’t open a card just to save 10% on your purchase. What it will do to your credit score simply isn’t worth it.
Credit cards get a bad name with reason. The good news is that they aren’t all bad. In fact, if you don’t have any credit at all, that can negatively affect your credit score because you don’t have any history to base your future financial behaviors on. The best way to boost your credit score is to have low-interest credit cards, use them when you want, but pay them off immediately. Also, follow the rest of the rules above for a healthy credit score for your future.
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