Making use of credit cards can be one of the best ways in which you can start building your credit score from scratch. However, getting approved for a credit card and managing one regularly can be a bit of a task. If you are thinking of how to use a credit card to build credit, try using one regularly while making all your credit-related payments on time. Furthermore, once you have a credit card, it is undoubtedly easy to damage your overall score and make it further worse than before you first started. This is especially true, in case you don’t know the best ways in which you can manage a credit card. Luckily, learning all the ways of managing credit cards isn’t something very difficult for a newbie. Understanding and taking a few simple steps can help in building a great credit score and a brighter financial future.
How To Use Credit Card To Build Credit: Checking Your Overall Credit Score
Most of the credit cards that you would be eligible for depend completely on your credit score. So before you start an application for a credit card, check out your overall credit score so that you can easily apply for the right one.
In accordance to Experian, your overall credit score can be classified as follows:
- Very Poor: 300-759
- Fair: 580-669
- Good: 670-739
- Very Good: 740-799
- Exceptional: 800-850
All of this information can be further used to narrow down the specific type of card that can be best for your usage.
Start Building Your Credit With A Credit Card:
Credit cards can be of great help in building credit because most of the credit card issuers typically report your activities to national credit bureaus such as- TransUnion, Experian, or Equifax. After receiving your data, these bureaus use all this information to provide credit reports as the basis of your credit history. To build credit with your card, first, you need to either open a card on your own or become an authorized user of another credit card user. Getting a card of your own can be a bit of a task especially if you have never had credit before. However, there are a few options that you can opt for:
- Student Credit Card: A student credit card is a great option if you are a student. Most of the student credit cards have lower credit limits. However, there are some cards available that have some fees and offer rewards on some sort of purchases.
- Secured Credit Cards: Secured credit cards are often a stepping stone especially if you are planning to build or rebuild your credit. Secured credit cards mostly function like those of a normal credit card, but here you might need to send the card issuer a security deposit whenever an account is opened. Secured credit cards might have high fees but in most cases, they don’t offer good cardholder benefits. However, it is a great way to get yourself qualified for a better card letter.
Apart from these two options, you can also try asking your family members or friends to add you as an authorized user for their credit cards. In case they do, their credit card company can report the account to the bureaus under your name. Having another person’s credit card as part of your credit score can surely help you in building credit as long as the main user of the card manages it well. However, it is important to know that your credit won’t be of help if the primary cardholder doesn’t make timely payments.
Factors Influencing Credit History
Four crucial factors can directly or indirectly influence your overall credit score especially if you are thinking of how to use a credit card to build credit. These factors include:
- Payment History.
- Length of credit history.
- Utilization ratio.
- New credit.
Payment History: Remember, payment history is undoubtedly the most significant factor that directly affects your credit score. It makes up almost thirty-five percent of your overall FICO score and it is further taken into consideration by most of the lenders. In order to answer the question of how long it takes for payments to improve credit score, a timely payment history is a very important factor.
Length Of Credit History: Especially when it comes to the length of credit history, remember older is better. This is the reason why you must always keep your credit cards open when you aren’t using them. When a new credit card is opened, it can also create a drop in your total credit score because it decreases the overall time span of your history. Remember the length of your credit history makes almost fifteen percent of your score.
Utilization Ratio: The utilization ratio makes almost thirty percent of your overall credit score. It is generally used to compare your overall outstanding balance to your total credit limit. Remember outstanding balance is the amount that you owe while your overall credit limit is the maximum you can borrow. Your goal should always be to borrow twenty percent or less than your total credit limit.
New Credit: New credit affects almost ten percent of your score. Remember the more you are applying for your loans in a short time span, the lower your chances of score drop. This point is especially important if you are thinking of how to use a credit card to build credit.
Remember the road to building credit can often become long and winding, and getting hold of a good credit score isn’t something that happens overnight. If you are planning to boost your finances with the help of rents or utility bills try using Credit Rent Boost. We at Credit Rent Boost work hand in hand with tenants and homeowners and report rent payments to credit bureaus such as Equifax and TransUnion every month. With us, you can stay assured about confidentiality and great performance. In order to get answers to all your queries regarding credit check with the help of rent try logging into our website.