If you are trying to improve your credit score, then you might have considered cutting your credit card up and throwing it in the trash. But, wait! Although it may seem counterintuitive, spending on your credit card can actually be an excellent strategy for improving and repairing your score, making it easier for you to get extra lines of credit, such as loans, car finance, another credit card, a business loan or even a mortgage in the future.
But, for this strategy to work, it is important that you know how to spend wisely so that no further damage comes to your credit file. We’ve listed some top tips to help you use your credit card to build your credit rating back up.
Tip #1. Keep the Balance at 50% or Higher:
When you have a credit card, it can be tempting to spend a lot on it, especially if you have a high balance – after all, it’s yours to do whatever you like with, as long as you make the repayments! However, there’s a catch – spending over 50% of your credit card balance doesn’t always go down well on your credit file; it can lead future lenders to believe that you’re relying too much on credit for making general purchases and covering your expenses. In turn, you may find it much harder to get accepted for credit products such as smartphone contracts, car finance, hire purchase agreements, personal loans and more. It could even stand in your way of getting a business loan or a mortgage. Instead, make sure that the balance of your credit card is always at 50% or below – for example, if you have a $500 limit, then you should make sure that no more than $250 is owed at any one time. For more information about repairing your credit rating, see https://creditrepaircompanies.com.
Tip #2. Pay the Balance in Full:
Whenever possible, you should pay off your credit card balance in full, rather than simply making the minimum repayment. Not only will this go in your favor on your credit file, but you’ll also save money by avoiding paying interest and charges on a small repayment each month; in addition, you’ll clear your balance sooner and be able to use your credit card again without delay. To achieve this, it’s a good idea to only use your credit card for purchases that you know you will be able to easily pay off, for example, many people use their credit card for purchasing grocery shopping as they know that they’ll easily have the money to repay it when they get their paycheck. Sticking to purchases that you’d normally be comfortable making with your own money is the best way to ensure your ability to repay when using your credit card to rebuild your score.
Tip #3. Select a Purpose Build Credit Builder Card:
Many financial and credit card companies today understand that it can be difficult to rebuild a credit rating when you’re struggling to get accepted for a credit card, so there is a variety of ‘credit builder’ card products on the market to choose from. Typically, these cards will have a low overall limit, however, if you show responsible handling by making your repayments in full and on time each month, it’s likely that you will be rewarded with a higher amount to spend after a certain period of time. Credit building credit cards are also ideal if you have no credit rating; for example, if you have never had any sort of credit in the past then lenders are going to view you as more high risk, since they have no way of telling whether you will be a responsible borrower. By starting off with a credit building card, you can start to create a good credit rating and maintain it.
Tip #4. Use a Mobile App:
If, like most people today, you use a smartphone or tablet, then it’s a great idea to opt for a credit card company that provides customers with an easy to access mobile application for checking the status of their credit card spending and repayments. An app on your mobile or tablet device is going to remind you to check your balance, and many lenders will even send out push notifications to warn you if you’re about to get close to your spending limit, or if you have a repayment that’s soon due to be made. Many credit card apps have an easy-to-navigate user interface and can be used to conveniently make repayments using your debit card with just a few clicks or swipes. This can make it much easier for you to manage your credit card and avoid forgetting – it happens!
Tip #5. Avoid Cash Withdrawals:
If you need to pay for something in cash and have your credit card to hand, then it might be tempting to withdraw money from it. However, although this won’t affect your credit rating per se, it can have a huge effect on your repayments; withdrawing cash from an ATM using your credit card often comes with a hefty fee. In turn, this could make it more difficult for you to meet your repayment commitments for the particular month. Just one missed or late payment can be seriously damaging to your credit score! So, think very carefully before you make any withdrawals. You should also be careful if you plan to spend on your credit card abroad, too – don’t get caught out by the charges.
Tip #6. Set Up an Automatic Repayment
Lastly, the best way to ensure that you always make at least the minimum repayment on time is to set up an automatic payment from your bank account to your credit card account. If you’re not sure about how much you’re going to be able to afford to pay off each month, then the best thing to do is set the automatic payment up for the minimum amount; you can always pay off more manually if needed.
Do you have any tips for improving a credit score using a credit card? We’d love to hear from you in the comments.