Credit cards: how to use them wisely to raise your credit score
Indeed, only those who have applied for a loan, a mortgage, or financed a car know how important it is to have a good credit score. But more important than lamenting a bad score is knowing how to build credit with simple resources like a credit card.
Yes, credit cards are one of the main tools for those who want better credit. Below we will show you why!
How long does it take to build credit with a credit card?
Very low-interest rates and more flexible loans. These are the types of resources that only people with a high credit score have access to.
If you don’t know how credit scoring works, it’s good to have a good manual that explains it. After all, your financial life will be directly impacted by those three digits at all times.
However, in short, know that the credit score is the way banks use to know how responsible you are with the use of credit.
By “responsible use of credit”, we mean making payments on time and using up to 30% of the total amount of your credit, among other practices.
In fact, for the bank to assess how good a credit manager you are, you need to use credit. The easiest way to do this is to apply for a credit card that reports your payments to a credit bureau.
Another option is to become an authorized user of someone’s credit card who has good credit. However, this second option is not always available to everyone.
After all, not everyone has someone with good credit nearby who is willing to offer a card. In addition, this option has limitations regarding costs and usage.
Well, after you have a credit card in hand and use it responsibly, how long does it take for your score to improve? Well, in the vast majority of cases, changes in your score are not felt in the first few months.
In fact, you can only be sure that your score will improve after the first year of responsible use. However, before this period, some users register that it is possible to observe some changes in the indicator.
Does having more than one credit card better for building credit?
When asked about how to build credit, it is common for doubts to arise about the ideal number of credit cards for this. Well, there is no easy answer to that question.
Mainly because having more than one credit card will generate many positive and negative impacts on other aspects of your financial life.
However, from a credit score point of view, two aspects need to be detailed. The first is that the more cards you have, the greater the overall limit available.
A person’s overall credit limit is the sum of the limits on all the cards they hold. If you have a lot of cards, this limit increases. Thus, it is much simpler to respect the usage limit of 30% of the global credit limit.
Indeed, this is extremely important for your credit. Also, your credit score tends to become lower temporarily every time you apply for a new card. However, the more credit cards, the more difficult it will be to manage them.
Thus, you may not be able to pay the invoice for all your cards within the stipulated period. This can do serious damage to your credit history and start a debt spiral.
Therefore, you should assess your ability to manage multiple cards before considering this possibility.
5 simple tips for building better credit with a credit card
In the next few lines, you’ll read expert-approved tips on how to build credit with a credit card. So make sure you understand and put into practice each of these:
Attention to deadlines
Nothing can wreck your credit score like late payments. Therefore, you must be very careful and respect the deadlines for paying your card balances. One tip is to authorize payments.
You can usually do this with just one click in the card management app. In months when you cannot pay on time, negotiate with your credit card issuer to pay your debt in installments.
Respect the limit
A few years ago, banks carried out a survey to understand which percentage of credit utilization represented a greater risk of indebtedness.
Thus, they found that people who use more than 30% of their credit limit are very likely to accumulate debt. Thus, through the credit score, banks began to encourage people not to exceed this percentage.
When you use more than 30% of your total credit limit, your score tends to go down. Therefore, strive to keep your credit usage below this percentage.
Limit your credit requests
Every time you apply for loans, student loans, mortgages, or credit cards, your credit is checked. Regardless of whether your proposal is approved or not, your application could affect your credit score.
In fact, a single request may not cause considerable damage. However, if you make multiple requests in a short period of time, your credit will be seriously damaged.
Therefore, make fewer requests for credit bureaus. If you need them, try to space these requests at least six months apart.
Choose a good credit card
If your mission is to build credit, you need a card designed for that purpose. Even without credit or with a bad score, you can count on good cards to help you.
You can find options with a low annual fee and a great credit limit. Furthermore, it is possible to find these two advantages in cards with very few application requirements. Prefer cards with these characteristics.
The older, the better
One of the factors that affect your credit score is the amount of time you spend using the same service. Therefore, the more you use the same credit card, the better your score will be.
So don’t get rid of your old cards so easily. If possible, talk to the bank and negotiate better benefits for the card you already have.