In today’s economy, it is necessary to have a good credit score to do anything from buy a car to own a home. Establishing good credit can be done in many ways, but the most accessible way in which to show the banks that you are a reliable consumer is to acquire a credit card and pay off the bills.
Using a credit card to establish good credit not only demonstrates your reliability but it can also teach you budgeting skills that will last a lifetime. Below are three ways to begin using a credit card to establish good credit.
Paying Off Your Balance
A great place to start could be to understand how and where you can use a credit card. Surprisingly, the number one way to use a credit card to demonstrate good credit is by charging simple everyday things on a credit card over the course of a month, and then pay off that balance in full. Treating your credit card like a debit card means never charging anything that you can’t immediately pay off.
By paying off a balance in its totality every month, you prove to banks and institutions that you have the resources and financial aptitude to be eligible for larger lines of credit, or car and homeowner loans. If you treat your credit card like a debit card and don’t overextend yourself by buying extravagant or expensive items, you will also develop a sense of constraint that ensures you will never end up in debt you can’t get out of.
Keep Your Credit Amount Low
Another way in which to establish a good credit score through using a credit card is by keeping your available credit amount low. Every credit card gives a consumer a credit amount that they can borrow. Ensure that you never come near or reach this limit, but rather limit yourself to a budget, for example $500 that you won’t go over every month. If you go over your credit amount, this can negatively impact your credit score and it will be more difficult to qualify for larger lines of credit or loans in the future. Keeping your credit amount low also prevents you from over-charging yourself and having difficulties paying off a balance in the future.
Limit How Many Cards You Carry
When considering using a credit card to improve your credit score, make sure you do not sign up for several credit cards. Credit card companies frequently give consumers attractive offers such as mileage points or other freebie gifts and it is easy to get sucked into the gimmicks. Beware signing up for several credit cards only to get these bonuses and then cancelling the cards because doing so negatively impacts your score and shows that you have many cancelled credit cards, a warning sign for banks and institutions.
Limiting yourself to one or two credit cards that have relevant rewards to your financial situation keeps your credit situation manageable and increases your overall reliability.
Having a good credit score is crucial to keeping yourself financially healthy. Using a credit card to establish your credit score can teach you financial knowledge and will establish you as a reliable consumer and set yourself up to be eligible for greater financial benefits in the future. Using a credit card can be tricky, but if you use it responsibly it can be a great tool.
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