How to use credit card to build credit score
Excellent credit ranking is necessary in many aspects of life. Proper using of credit card is significant part, when you try to build or rebuild your credit score. Your ranking is affected by several factors. The most important of them is your behavior as a borrower: the way you pay your bills, the total amount of your loans and the length of your credit history. You cannot rewrite the history, but you can do your best to avoid mistakes in the future. So what are the main reasons why you score drops below 720 or even 620 (which means from average to bad score) and how to avoid it when you use a credit card?
Here some tips how to use credit card in order to have good credit ranking.
Reduce debts. If you have huge debts or keep high balance on your credit card account, you ranking is going down. You should set up a plan how to reduce your debt as soon as possible in order to increase the score. Sometimes it may be useful to consolidate debts or transfer balances to the credit card with 0% interest and to try to pay all debts with less interest charges. But be careful with such offers, because after the introductory period attractive rates will turn into standard APR.
Increase limits. The ratio between your credit limit and your balance affects your ranking. If you cannot decrease balance, try to increase limit by a phone call to the bank. Anyway, you should keep your balance at the level not exceeding 30% of total limit on all credit your cards.
Avoid late payments. Each late payment is reported to the credit bureaus and appears as a dark spot in your credit history. Be accurate and pay at least minimum payment due to provided date. It also will save you much money on late payment fees.
Pay more. If you submit only minimum payment each month, your debt is expanding and the amount of interest is growing. With only minimum payments $1000 loan can be paid for years. Pay more each month, pay during a grace period if you can and once you’ll find out that your debt is cleared and you credit score is in right shape.
Negotiate rates. Call to your lender from time to time and ask to reduce your credit card APR. Sometimes call-center representatives have special offers which are not published anywhere. Such rates are offered only when you ask or say you have better deal. Lower rates can help you to pay your debt faster.
When old is better than new. Each new credit card application leaves negative impact on your history. It’s considered that your credit limit does not satisfy you any more if you apply for a new card. When you switch to a new bank, make sure that your previous account is closed. Because account with zero credit limit and some balance looks very bad.
Check your score. Your credit score can be damaged by mistake. Clerical mistakes, wrong account numbers, lost checks can lead to lower credit ranking. By checking it once a year you’ll be able to fix errors in a timely manner and improve your credit history. By the way using internet-banking instead of old-fashioned hand written checks eliminates risks of loss and misinterpretation.
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