Remember that shiny new credit card you got in the mail shortly after you turned 18? After a few trips to the mall and your local Starbucks, that little piece of plastic had you deep in debt and unable to keep up with payments. Eventually, you could no longer pay on it and your credit was ruined.
Believe it or not, that same piece of plastic can help you get your credit back on track -- if you use it wisely.
A great first step to improving your credit score is to own, use, and pay on a credit card regularly. Charging purchases to your credit card and then paying off your balance on time lets creditors know that you can use credit wisely and, better yet, you can be trusted with higher lines of credit in the future. Sounds simple, right? To an extent it is, but there are some important factors you'll want to consider when repairing your credit.
Having a Credit Card
If you don't already have a credit card, and you think no one wants to take a chance on your bad credit history, have no fear. There are still plenty of credit cards for bad credit that you can qualify for.
If rebuilding your credit is your goal, the key feature you want to look for in a new credit card is to make sure they report to major credit bureaus. This ensures that your good behavior with the card, charging purchases to it and paying those off by the due date, is reported to the companies that track your credit history (Equifax, Experian, TransUnion, and others). Over time, your good account history can lift your score and help take you from bad credit to good credit.
Using a Credit Card
The last thing you want to do is max out your credit card, or even come close to doing so. It is important to know what your credit limit on the card is. Then, make sure you don’t charge more than 50% of your available credit limit. On a card with a $500 limit, that means keeping your balance below $250 at all times. Ideally, you'll find one, or several, small things a month that you can charge and pay off right away, such as fill-ups at the gas station. Doing so reminds you to stay disciplined with your card and to not run it up to its limit.
Paying Your Credit Card
As you probably already know, this is the most important part. If improving your credit is your goal, the last thing you want to do is miss a payment due date. Not only can your credit score drop if you pay late on your credit card account, but you may also incur late fees and send your interest rate through the roof. In addition, a lower credit score means it could cost you even more to take out an auto loan, mortgage, or other line of credit than it would have if you’d just paid your bill on time. All told, missing a payment (or even paying a little late) can be very costly to you.
Not only do you want to make at least your minimum credit card payment on time, you also want to stay current with all your other bills too. Just because you use your credit card responsibly doesn’t guarantee a better credit rating; you will want to pay all your bills on time and maintain all balances below their limits in order to see your credit score rise.
By following these simple guidelines, the little piece of plastic that quickly became your enemy so many years ago could become your biggest ally.
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