Credit cards have direct influence on credit score and are one of the best ways to start building credit. Since they have so much impact on credit, it’s important to use it responsibly because they can be equally as damaging. To ensure your credit card is benefitting your financial growth there are many factors to keep in mind before you start spending.
Make all payments on time and in full
Putting regular expenses on a credit card helps establish credit without going into debt. As long as you pay the credit card bill on time and in full each month, the issuer will report your payment history to each of the major credit bureaus. By paying your bills in full you also won’t have to pay any interest later. Payment history accounts for 35% of your FICO score, which is why keeping up with monthly bills is so important.
Keep track of spending
Since your account balance doesn’t change when you make purchases on a credit card, and only when you actually pay off the bill, people can quickly lose track of spending. It’s beneficial to treat it more like a debit card and keep a budget so you always know how much you have available to spend. Spending within your means ensures you’ll avoid carrying a balance and paying high interest rates.
Keep balances low
How much you owe is has the second largest impact on your credit score, accounting for 30%. Along with that FICO also takes into consideration credit utilization, which is the amount you owe as a percentage of your available credit. The higher the utilization, the more likely it is that you’ll be overextended and miss payments. It’s best to aim for 30% or lower, as keeping the balance low can significantly help raise overall credit. It’s also important to remember that credit utilization can still be high even if you make all your payments on time. If you have high utilization, it’s best to try to make multiple payments before the bill is sent.
Keep accounts open
Every time you open a new card or close an old one, it lowers the average age of your accounts, which can also lower your credit score. Credit history is a good predictor of your behavior to lenders, so the sooner you open an account and show you can use it responsibly, the better.
If you have bad or fair credit, it’s unlikely you’ll be able to get approved for the best offers. It’s best to try to find offers specifically designed for your credit. Every time you apply for a card, the issuer checks your credit score, which can also hurt it. Applying for multiple cards in a short period of time can hurt your score even more. This is why it’s important to review your options and be confident that it’s a card you can get approved for. There’s a common misconception that credit cards are bad for credit, but that is only if they’re used irresponsibly. Being smart with your purchases and payments can actually have strong positive impacts on credit.
Additional Offers From TLC
If a credit card doesn’t seem like the right fit for you, consider a personal installment loan from TLC, as they can be a much safer option. For those unfamiliar with personal loans, they work much like auto, mortgage, or student loans, but you’re generally free to use it for whatever you desire. You can receive a personal loan from a bank, a credit union, or an online lender. You apply for your desired amount, and the lender uses your credit report and history to determine whether you qualify and at what interest rate. Since a personal loan is an installment loan, you get the money in one lump sum and make fixed monthly payments over time. The repayment period usually ranges from two to five years. Interest rates for personal loans generally range from 6% to 36%, depending on the borrower’s credit and the rates of the lender.