Building up your credit score is very important. It is best to start building credit as soon as you are old enough to have your first credit card. It is a great way to prepare yourself for the future. Without credit, you won’t be able to make large purchases that require a loan such as buying a new car or home. One of the best ways to start building credit is with a credit card.
Secured Credit Cards
If you have no credit, it’s going to be difficult to get a credit card. Fortunately, there are cards that you can get to help you start building your credit. If you have no credit or poor credit, you can apply for a secured credit card. In order to get one of these cards, you will need to put down a security deposit. If you fail to make a payment, the card issuer will use the security deposit to cover the amount that you owe. The credit limit on these cards is not high. Most secured credit card issuers will give you a line of credit between $300 to $500. Each time you make a payment on time, it will be reported to one or more of the major credit bureaus. If you make your payments before the due date, eventually, the issuer will offer you a traditional credit card. But before this would happen, you first need to prove that you’re responsible.
High-Interest Rate Credit Cards
When you are first offered a traditional credit card, you should expect a relatively high-interest rate. As you build your credit, the rates available to you will decrease.
Tips to Improve Your Credit Score with a Credit Card
When you are approved for a credit card, you need to make the right financial moves if you’re going to continue building your credit. These include:
- Making sure that you pay your bill before the due date.
- Making sure that you don’t charge more than you can afford to pay back.
- Avoid maxing out the credit card. The more outstanding debt you have, the harder it will be to increase your credit score.
- Limiting the number of credit cards that you have. If you have several cards, you might be tempted to use them all. This will put you into debt quickly.
- Not paying off the full balance. Making monthly payments will increase your score faster than paying off the full balance (however, you’ll also have to pay interest).
- If you’re in a financial bind and cannot make a payment, contact the issuer before the bill is due. If you can work out an extension, it won’t have a negative effect on your credit score.
In order to get a car loan or a home loan, you are going to need to build credit. One of the best ways to do this is with the use of a credit card. As long as you use them responsibly and wisely, you will be on your way to building an excellent credit score.