Why Credit Cards Are Important For Building Credit
As adults in the United States, we are very conscious of our credit, or at least we should be! Your credit score is a number that follows you around no matter where you go or what you do. This number tells the banks how credible you are when it comes to borrowing money. It tells banks the probability of you paying that money back based on past instances. With a low credit score, you will find it almost impossible to get any type of loan without a co-signer who has good credit. With that said, I am quite sure that there are many consumers who are desperately trying to build their credit scores. Getting phone and other utility bills in your name just doesn’t seem to fix the problem fast enough. As a matter of fact, that process can take years to bring your credit to a fair credit score.
The fastest way to go about building excellent credit scores is to open a secured credit card account. Given the fact that you are attempting to build your credit score, I can guess that it’s either bad or just not there at all. Secured credit cards are accounts that banks will give anyone because there is absolutely no risk involved. In essence, you are simply borrowing your own money to prove that you are a credible borrower.
The way secured credit cards work is simple. When a consumer goes to open an account, the application is just like any other credit card. However, before you are able to use your new secured credit card, they require that you place a deposit with the bank. This deposit then becomes your credit limit. Just like any other credit card however, you do have to pay interest even though you are essentially borrowing your own money. After 6 to 18 months, you are refunded your deposit in most cases and this secured credit card then becomes an unsecured one. Finally, you are able to borrow the banks money!
It is important however, that you use secured credit cards properly. Even though you are borrowing your money, this card is used to show banks how you will react to real loans and other financial situations. Using it improperly can detrimentally effect your credit score for a long time. First off, always pay your bill on time! No, I don’t mean the bill is due on the 19th so stick a check in the mail on the 18th. You should always send payments at least 3 weeks before the due date to ensure that the mailing system has time to get the payment to the bank and the bank has time to process your payment. Also, never spend more than 50% of your credit limit whereas this can show the banks that you are not exactly financially stable. Finally, NEVER PURCHASE ANYTHING THAT YOU CANNOT AFFORD TO PAY FOR! Many consumers get a credit card thinking that this is a never ending pit of money that they can tap into whenever they want. This can’t be any more incorrect. If you can’t afford something, you shouldn’t buy it PERIOD. Credit card or not this is a bad decision.