How To Build Your Credit Using Credit Cards
Your credit score plays a huge factor in the type, amount of money, and interest rate of any loan you will ever get in the United States. Building credit in tough economic times however can prove to be quite the difficult process. With new laws in place making it harder for banks to price for risk, consumers that are new to credit are having a hard time finding a bank that will give them a loan to start with. Fortunately, all is not lost. There is one type of credit card that anyone no matter what your credit score is can be approved of. These are called secured credit cards and are the best way to go about building credit scores!
To start, before you build your credit score, it is important to know where you are starting. Get a copy of your credit report and read through it to find out if you have any delinquent accounts out there. If you do, start to pay them back whereas delinquent accounts can hinder the growth of your credit score. Once you have paid them back, you will be ready to start looking for a secured credit card.
Secured credit cards are designed for consumers who are new to credit or have made mistakes in the past. The reason it is called a secured credit card is because you will need to place a security deposit with the bank before you are able to use the credit card. This security deposit then becomes your credit limit for that card. Yes, you are going to borrow your own money. This is why anyone qualifies for secured credit cards. There is no risk to the bank involved. However, if you use the card properly, in most cases your security deposit will be refunded within 6 to 12 months. Once the security deposit is refunded, you are now borrowing the banks money and your credit card changes from a secured account to an unsecured account.
When using secured credit cards or any credit card for that matter, there are a few things that you should remember. First, never buy anything that you cannot afford to pay back! Also, remember to send your payments at least 2 weeks in advance. This gives the postal service time to get your payment to the bank and gives the bank time to process your payment. Another best practice is to never spend more than 50% of the amount of money allowed on the credit card. This can show the banks that you need more money than they are willing to give and can ultimately hurt your credit in the long run!
Finally, if you are reading this article, you are most likely new to credit cards. Keep in mind that credit cards should always be used responsibly. Improper use of credit cards can lead to severe financial hardships and even bankruptcy and is not advised by any financial expert.