How to build your credit score using credit cards

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How to build your credit score using credit cards
2 years ago
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If you have a poor credit history or have had not established any credit yet, it may not be easy to obtain a credit card. But do apply for one because you still have a good chance of getting an approval. You will need a credit card if you want to build your credit score but be prudent in using it. The following tips should guide you on how to get and use a credit card in building your credit score.

1. Limit your applications for credit cards.
Do not apply for several credit cards within a 12-month period. For each credit application you file, whether it is for a card or a loan, an inquiry is sent to the credit bureau and this brings down your credit score by a point. Apply for a credit card only if you think you have found the right one.

If you do not have any credit history but if you have been maintaining a deposit account with a bank or credit union for some time, your best bet is the credit card issued by your bank or credit union. If you have properly managed your account, you stand a good chance of getting an approval.

On the other hand, if your credit is bad, the easiest approval you may get is for a "bad credit" credit card. Do not expect much in terms of credit limit as it will be low and you can expect to pay high interest and other fees. Perhaps the best deal you can have is a no-annual-fee card.

2. Use your credit card but do not misuse it.
Your new credit card will help you build your credit score only if you use it. If you don't use it at all, it will not help any. Besides, even if you don't use your credit card, your available credit will still be counted as debt when a lender computes your debt to income ratio. The best thing that you can do is to use your credit card when making small purchase and make sure that you pay on time. Also, pay a big portion of the balance reflected in your monthly bill.

3. Do not pay off your credit card balance all the time.
The card issuer can take this as a message that you are avoiding the payment of interest. Although the practice is a sign of your financial responsibility, the credit card company may decide to increase your service charges to compensate for the interest income it could have earned from your account.

Since you're enjoying the credit privilege, let the card issuer profit from you. If you want to build a good credit history, pay at the very least the minimum amount and at least five days before due date. Make sure to leave some balance of say $5 to $10 to be carried over the next month's bill.

4. Start building your credit early.
Start working on your credit early so that when the time comes when you will need an excellent credit rating, you already have established it. All you need to build your credit is one credit card. If you hold on to a number of credit cards, you stand to lose some credit points even if you don't use your cards. If you wish to build your credit further, you can add a gasoline credit card and a store credit card to your major credit card. Just follow the same tips on the best use of credit cards so you can effectively build your credit score.
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