How Do I Build Good Credit with my Credit Card?
When most people apply for a credit card, they do it with thoughts of new appliances and exotic vacations dancing in their heads. And while credit cards are a good way to buy things you may not be able to afford if you had to pay in cash, the real purpose of a credit card is to do one thing: to safely and securely build your credit rating. The unfortunate thing is, if you were to ask 100 people what credit cards are really for, you would be lucky to have one person give you the correct answer.
So, how do you use your credit cards to build a solid and sound credit rating? Most people believe that you use your card and then pay off the balance every single month. End of story. Others, however, believe that you need to carry a balance, albeit a small one, to properly create a good credit rating. But what if your card charges you a fee for paying the entire monthly balance every month? And if you need to carry a balance, how large is too large and why should you have to pay interest payments just to build a good credit rating? Let’s take a closer look at how to build the best credit rating out there with your credit cards.
It turns out, the key to a strong credit rating is tied to payment history. It really doesn’t matter if you carry a balance, although your credit card company sure wishes you would, it is all about making payments on time, every time. And in the best interest of your financial standing, that payment should be the largest percentage of your balance that you can afford. You don’t always have to pay off your balance every single month, but try to always pay more than the minimum.
What most people don’t know is that your credit history is influenced by a lot more than just your credit cards. You could have a great payment history on your credit cards, but still have lousy credit. How? By neglecting any other payment account in your name. That’s right, everything from your car payment, your mortgage, even your utilities can report to your credit bureau and give positive or negative payment histories. That’s why it is so important, every time you enter into an agreement that you make payments on time, every time. Make sure if you still send out payments through snail mail that you allow for at least a week for delivery and processing for all of your payments, including car and utilities. If you make your payments online, you still need to allow for 2-3 days for processing. You would think that in this day and age, debit card payments would process and be applied in seconds, but the old style of processing is still in use, and it can take days for transactions to completely finish.
Finally, as your credit improves and you work your way up the credit card ladder from secured and student cards to regular cards and then on to gold or platinum cards and reward cards, try not to cancel out any of your old cards unless they are charging you an annual fee. By reducing your overall amount of credit, you are causing undo harm to your rating.