Easily Build Your Credit Score with Credit Cards

Credit cards are an excellent way to build up your credit.  It gives you an opportunity to prove to creditors that you will pay them back.  To put everything into perspective, people will be more likely to loan their money to a friend who always pays them back when they agreed to.  That is the basic principle behind your credit and what creditors are looking for.  Are you trustworthy and likely to repay?  Most credit cards start you out with small credit card limits until you establish your track record.  There are two key factors of managing your credit cards that help you build up your credit score the most.

1. Credit Utilization.  Credit utilization measures how much of your credit limit you are using.  It is important to keep your balances low, and it is often recommended to only use 30% of your credit limit, to have the most positive impact on your credit score.

Credit LimitRecommended Utilization (30%)
$300$90
$750$225
$1500$450
$5000$1500

2. Payment History.  This simply measures how well you repay the debt.  It is important to pay on time every month to see the positive impact on your score. 

Respectively, these two factors make up 30% and 35% of your credit score.  That is 65% together, so the majority of your score is determined based on your performance in these areas.  Also, if you already have negative reports on your credit, you can focus on these two rules to re-establish with some positive credit reporting.  Having a positive track record for 12-24 months can increase your score significantly and open up new opportunities.

How to Qualify for a Credit Card

1. Age and Income: You need to be at least 18 years old and have steady income.  

2. Payment History: If you already have established credit, creditors will look at how you have managed those debts as a qualifier.  Your payment history and credit utilization on current or previous credit cards will be reviewed.  If you have other credit cards you didn’t pay well, you will be less likely to be approved.  On the other hand, having accounts that you have paid perfect will increase your likelihood to be approved and possibly offered a higher credit limit. 

3. Credit Utilization: When looking into credit utilization, having cards that are maxed out will affect you negatively on your score and also when applying for new accounts.  Keeping your balances low show that you have more control over your spending. 

4. Debt-to-income ratio:  The amount of debt you have in relation to your income coming in.  This ratio allows the creditor to make sure you are not over extended and can afford additional payments.

Things to Consider When Selecting a Credit Card

Now that you know how easy it is to qualify, let me touch on some key areas to look at to pick a good credit card.  There are 5 different things that you need to pay attention to before committing to a credit card, or even letting them pull your credit.

1. Interest rates (APR): You want to get credit cards with the best interest rates.  Compare different interest rates before selecting a card to apply for.  Pay attention to phrasing like “Introductory APR” or “As Low As”.  Although these could be great deals, it needs to be looked into further.  Introductory rates only last for a specified time period.  After that time, it increases to your actual APR.  That is the rate to pay attention to.  Also, advertisements with the phrase “As Low As” often signifies that you must meet certain guidelines to get that rate.  Although only select people qualify, companies advertise their best rate to get your attention.  It is important to make sure you are aware of the details that are specific to you.

2. Fees: There are several things credit card companies charge fees for, and it is important to understand them before applying.  Common fees to check for are annual fees, balance transfer fees, over the limit fees, cash advance fees, and late fees.  Understanding upfront what you will be charged for can help you select a card that is a better fit for you.  (Additional Info:  Some cards may increase your interest rates if you go over the credit limit, get cash advances, or if you make a late payment.  Take the time to read through the details and fine print to understand all the fees.)

3. Credit limit: You want to make sure you get a credit limit that is easy for you to manage.  Keep in mind that you only want to utilize about 30% of that credit limit.

4. Rewards: A key selling point for credit card companies are different rewards programs based on your spending.  It is worth taking a look at different benefits you get from using a particular credit card over another.

This article should give you a good idea of how to manage your credit cards and key things to look for when comparing different credit cards to each other.  The more knowledgeable you are, the better position you put yourself in to experience the benefits of positively building your credit using credit cards.

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