How to Build Credit with Credit Cards

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You CAN Build Credit With Credit Cards

When you only spend what you can afford, using a credit card is a great way to build your credit.

Before you start on this journey, make sure you know your credit score. Many places like WalletHub or Credit Karma will watch your credit and do a soft pull throughout the year. That means it doesn’t affect your credit, but they can still keep tabs on it for you. They’ll email you if they see changes in your score (up or down) so that you can check up on it if something looks fishy.

Also, make sure that you aren’t using more than 30% of your credit limit. Credit reporting bureaus take into account the debt-to-income ratio when calculating a credit score.

Let’s move on to some specific ways you can help build your credit with credit cards.

Pay It Off Every Month

When you pay off your credit card balance every month, you incur no interest fees. If you get one that earns cash back, you’ll actually be making a little money and building your score at the same time.

Whether you need travel rewards or points for gas and groceries, check around at the different credit card options for those with poor credit. There are a few that do offer cash back.

Take advantage of those reward points, but make sure you only charge things you can afford to pay off. If a reward is only 1%, do a quick calculation to find out if the amount you make is better than paying interest. It’s almost always better to skip the purchase or pay with cash.

Build A Budget

Building a budget can help you know the precise amount of actual cash you have available to spend. Take the time to make a zero-balance budget with all your income and expenses listed.

Then stick to the numbers you set out at the beginning of the month, even if it means you can’t have that shiny new thing you wanted. Pretend that your credit card is a debit card and you can’t spend more than you actually have in your bank account.

Use the credit card’s smartphone app to pay off the amount from your bank account as soon as you leave the store. Make the payment and you won’t have to worry about it or forget on accident.

Don’t Close Your Account

Keep it open after you pay it off, even if you don’t use it. Having the account open shows that you can manage your access to credit without increasing your debt.

There are also special discounts for credit card holders and offers you wouldn’t get if you closed the account, in particular on travel expenses. Make sure there are no annual fees that will ding you even when you aren’t using the card, and remember to check what deals your Visa or Mastercard can get you when you plan your next vacation.

Keep Your Limits Low

If you are new to using credit cards, it’s helpful to keep your credit limit low. When you pay your bills on time, the credit card companies will offer you an increase in credit limit, and while it’s tempting to accept, the smart thing to do is keep it at $500 or $1000.

If you have the buying power, it’s so easy to run up $6000 worth of charges in no time, and you’ll wonder what happened. You won’t think it’s so bad until you start getting hit with the interest every month, and paying $100 extra over and over for things you couldn’t afford to begin with.

Pay On Time

Don’t make late payments — it dings your credit score. When you’re smart with your credit card, you can increase your score over time. If credit card reporting agencies see that you either can’t remember to pay or (the more plausible option in their minds) can’t afford the payment, they’ll drop a couple of points from your score.

The reporting agencies look at habits, too. If your history shows you’re prone to making late payments, it will take more on-time payments in a row to prove you can pay on time. One late payment in a long history of on-time payments won’t affect your score as much as habitual overdue payments.

It Takes Time

Be patient. Your credit score doesn’t improve overnight, no matter how much you’d like it to.

It’s also not going to improve overnight if you keep opening new credit card accounts. Rather than getting a new credit card every month to prove you can handle the responsibility, stick with the one or two you already opened.

Focus on using them within your means, paying off the balance, and being on time. The main part of boosting your score is showing that you can make a habit of being responsible with your debt. And habits take time.

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The Best Way To Improve Your Credit Score

Now it’s time to go out and do something. Even if you’re worried that your poor credit score is too low, you can build credit with credit cards when you use them in a responsible way.

Remember that it takes time to prove your good credit habits, and don’t skip any steps. From budgeting to paying off the balance and keeping your limit low, you can boost your score.

For more helpful finance tips, contact EnjoyCompare today.

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