Having credit is a necessity for making major purchases in your life. Without having a good credit score brought on by carefully and responsibly managing your credit, you likely won’t be able to get a good home or car loan when the time presents itself. Knowing this, it’s vital that you know how to build your credit using credit cards. To show you how, here are three tips for using your credit card to help build your credit and retain a positive credit score.
Treat Credit Like Debit
One of the biggest mistakes people make when using a credit card is to spend more than they should. Because you don’t technically have to have the funds available to you when you use a credit card, it can be easy to spend money you don’t have and then think that you’ll just pay it back later. However, this can quickly become a slippery slope that leads you deep into massive credit card debt. To combat this, Ben Luthi, a contributor to NerdWallet.com, recommends thinking about your credit card the same way you think about your debit card. Only spend amounts of money on credit that you know you have available to you so you can pay that money back in a timely manner. This will go a long way toward helping keep your spending in check.
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Keep Your Balances Low
Similar to the tip mentioned above, one of the biggest factors for a credit score is how much of your available credit you’re using. Miriam Caldwell, a contributor to TheBalance.com, writes that if you frequently rack up a lot on your credit cards and use a big percentage of the credit you have available to you, this can ding your credit score. Ideally, you should keep your balance at or below 30 percent of your available credit allowance to show your lender and other institutions that you understand how to effectively use credit and the importance of paying the money back.
Think Before Canceling A Card
If you’ve gotten into trouble with credit cards in the past, it can be tempting to simply cancel all your cards so you can avoid having additional credit problems in the future. However, this isn’t actually going to be the best thing to help nurture your credit score. According to Jodi Helmer, a contributor to CreditCards.com, any big changes in your credit history or usage, such as closing an account, can be a red flag for your credit score. It’s actually better for your score if you can show that you know how to responsibly use your available credit rather than avoiding having to use it because you can’t control it. Knowing this, be careful about closing lines of credit if you’re wanting to improve your credit score.
To help improve your own credit score, use the tips mentioned above to become a better credit manager today.