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Tips for Improving Your Credit
Whether you use a secured or unsecured card, one of the best ways to build your credit is by paying on time. In the eyes of creditors, this shows you handle money responsibly. Eventually, if you need to secure a loan, lenders will take your on-time payment history into account.
Diligently paying according to the agreement with the company that issued the card gives lenders more confidence that you would pay their loan on time as well. Even if you only make the minimum payment allowed, never fail to pay when the bill comes due. Although you’ll have a grace period, typically 21 days, don’t wait to make your payment but pay the bill immediately upon receiving it.
To help you make your payments on time each month, you might want to set up an automatic deduction. You can do this with the card company by providing your bank or credit union information. If you have a busy schedule or tend to forget things, this is a real lifesaver.
A common mistake that people make isn’t using credit cards. Putting them away in a drawer doesn’t hurt your score, but it also doesn’t help. Instead, spend between 1% and 30% of your credit line each month. If possible, pay the balance in full. Otherwise, make the minimum payment. That alone will make a substantial difference in building your credit.
As an example, if you have a recurring bill that can be paid using credit, use your credit card. As soon as the credit card statement arrives, pay it off. Not only will that help build your credit, but you’ll also avoid any fees. Ultimately, it would cost you nothing to use the card for this type of expenditure.
As mentioned, having a credit card that you don’t use is another way to build your credit. Although this will take longer than if you spent money each month and paid the balance in full, it will still help. The three main credit bureaus even report on credit cards you stashed away. With the account in a “current” status, your FICO score will slowly improve.
You’re never too young to worry about credit. If you’re under the age of 18, have your parents add you as an authorized user on their account. Of course, the key is they must pay on time. However, if they adhere to the issuer’s requirements, you can build your credit right along with theirs.
Some people who struggle with bad credit secure the first credit card they can. Unfortunately, not all cards are worth having. It’s important that you compare the interest rate and terms among several top-rated cards and then make your selection. Keep in mind that most of the big credit card companies have cards specifically for people with less-than-perfect credit.
While you might find yourself in a position of only being able to pay the minimum amount due each month, pay the balance off in full as often as you can. This won’t have any impact on the interest, but it will keep your account in good standing.
With a credit card that has a $5,000 limit, you might feel tempted to spend freely. However, if you want to build your credit using credit cards, you must show discipline with spending. Never use the maximum limit on your card. Instead, charging between 1% and 30% is the best way to boost your FICO score.
If you currently have credit cards with high interest, consider consolidating them on a new card with a 0% introductory period. With that, you have anywhere from 6 to 12 months to pay the balance down without interest. Make sure the new credit card has a lower interest rate, allowing you to make the payments on time while paying the balance off early.
Since the reporting agencies make frequent updates, it’s essential that you check your credit score regularly. Visit the websites of TransUnion, Experian and Equifax monthly. At no charge, you can look at your reports to see if anything changed causing your credit score to decrease. If you identify something, take quick action to correct it.
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