How to Use a Credit Card to Rebuild Your Credit

Use-a-Credit-Card-to-Rebuild-Your-Credit

Does my credit score really matter? What is the importance of this number? It is important to understand that the backbone of your financial health is your credit score. If you have no credit, or bad credit, you’ll likely find yourself spending more money on various life essentials. Therefore, striving to continuously improve your credit, or rebuild your credit from past-issues, needs to be a priority within your life. While there are literally hundreds of different ways you can help rebuild your credit score, perhaps one of the most effective ways to correct a poor credit score is by smartly using a credit card.

How Credit Cards Enhance Your Overall Credit Score

Credit ReportCredit cards can do one of two things – they can boost your overall score or they can severely lower your score. The outcome is solely dependent on how you use them. Therefore, increasing your credit score can only happen if you continuously use your credit card wisely.

The first step in boosting your credit score with a credit card is to keep your oldest card active. Even if you’re not using this card anymore, the history of the card will help boost your overall score. However, when it comes to rebuilding your credit, you should use all of your credit cards sparingly. Charge a small amount every month and continually make regular payments. Remember, you should always keep your utilization ratio between 20 and 30 percent.

As a general rule of thumb, never charge more than 50 percent of the overall credit limit. For example, if you have a $1,000 line of credit, never use more than $500 of this credit. However, to truly boost your score, you should keep this closer to 20 to 30 percent – or $200 to $300 if you have $1,000 credit limit.

Another excellent tip is to pay off your credit cards in full. This keeps your utilization ratio low and saves you money by avoiding interest charges. While some experts suggest keeping a small balance on your credit cards, many more personal finance authorities suggest when it comes to rebuilding your credit, you should regularly pay off your debt each month.

This leads into the next tip, which is also the most important – never miss a payment. Payment history is one of the most influential elements within your credit report. Therefore, in order to keep your credit score on the rise, you should always strive to make at least the minimum payments on all of your credit cards. Failure to make even one payment on time can severely damage your credit score, which can take a significant amount of time to recover.

Source: http://your650score.com/what-is-a-good-credit-score/

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