Effective Strategies for Utilizing Credit Cards and Building Credit

If you are considering getting a credit card for the first time or looking to rebuilding your credit with a credit card. These basic steps can help you effectively utilize your credit cards, build a positive credit score, and maintain positive credit.

Choose a Credit Card

• Secure Credit Card: If you are trying to rebuild your credit or have no credit this credit card may be the best option for you. This credit card requires a deposit to get started (deposits may range between $50 and $300) this deposit serves as collateral to ensure any unpaid debt gets paid should you fail to make payments. If you choose to close this credit card with no balance owed, the deposit is given back to you.

  
  

• Unsecure Credit Card: In some instances, once you have had a Secure Credit Card for 5 months to 1 year you may be approved for an Unsecure Credit Card, this type of credit card does not require a deposit. Those who have no credit score also may be more likely to obtain this type of credit card.

  
  

Stay within your income limit:

No matter how many credit cards you choose to have, having a combined credit card limit that is less than your monthly income can be helpful. Staying within your income limit helps ensure that you are able to pay off the credit card sooner.  If your monthly income is $3000 and your credit card limit is $5000, it may be a bit more challenging to pay off if you decide to utilize the entire credit card limit; compared to utilizing a credit card limit of $2000 while still a bit much it serves as a guide to not owing much more than you can afford.

Have cash on hand first

Having cash on hand before making credit card purchases helps ensure that your payments are made on time. For example, if you are purchasing $100 in groceries, you would ensure that you have the cash on hand first but instead of using your cash you would use your credit card, and then use the cash to pay the credit card balance when its due.

Credit card utilization matters

While you want to pay off your credit card balance when it is due, credit card utilization matters. If your credit card balance is always zero, it may not show the credit bureaus that you can responsibly manage money and can sometimes keep your score from improving.  A credit card utilization between 10% and 30% is good. Let’s say your credit card limit is $400 and you spend $100 on groceries, that’s a 25% utilization rate. Allow this balance to be reported to the credit bureaus before paying it off. Once it has been reported and shows up on your credit report then pay it off with the cash you have on hand. Your low utilization rate will help improve your credit score.

Credit Age

When building or rebuilding credit, it may take several months to a year to see major improvements in your credit score. The length of time you maintain a credit card counts against your credit score. Always opening new credit cards can lower your credit age, so you would want to try and stick with the same credit cards for long periods of time to increase your credit age and potentially improve your credit score.

You can get there!

While paying off credit cards and debt is the first step towards "rebuilding" credit, these steps can help get you back on track and improve your credit in no time.

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Discipline is key🗝️

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