How To Build Credit With Credit Cards
Years ago, a firm handshake was all you needed to show that you are a trustworthy person. Unfortunately, due to the fact that there are many people that aren’t so trustworthy and do have a handshake, banks now judge how much they can loan to someone by credit history and credit scores. Your credit score is a number that’s based on how you have treated loans in the past. Factors like on time payment, amount of payment, and utilization of allotted credit all play crucial roles in calculating your credit score. One of the best ways to build your credit score to an acceptable number is by using credit cards to show that you are a worthy borrower. I know what you may be thinking, “if I haven’t built up a credit history, how will the banks know to loan money to me”. In this case, the banks will monitor how you borrow your own money through their processes. The type of credit card that is best to use when building credit scores is called a secured credit card.
Secured credit cards are meant for people with bad or limited credit history. These cards are called secured because for you to use the card, you must put up a security deposit. This deposit then becomes your credit limit. Essentially, you are borrowing your own money and paying interest on it. So why would you want to do that? The answer is simple. Look at it from the banks point of view. With bad credit history or limited credit history, it is much less of a risk to allow you to borrow your own money. If you can prove to be a good debtor using your own money, banks will eventually have no problems loaning money to you. It is extremely important that you use secured credit cards responsibly. Here are a few tips to help you make sure you don’t make any unknown mistakes:
Pay on time – A general rule of thumb is to make sure that you send your payment in at least 2 weeks before it is due. This allows time for mailing and processing. When thinking about credit card payments, always remember the earlier the better. Making a late payment in the early stages of building your credit history can have detrimental effects on how quickly this can happen.
Keep your debt below 50 percent of your credit line – Debt to credit ratio is something that banks will look at when deciding to loan you money. If you have a credit line that allows you up to $500, it is important that you do not exceed $250 worth of debt on that credit card. If you spend more than 50% of the allotted credit line, banks make an assumption that you are in dyer need of money and may not be able to pay your loans back.