In today’s financial world, having a good credit score is important for loan opportunities, high-interest rates, and reaching financial goals. It is important to note that when used responsibly, credit cards can be very effective to help you build and better your credit. This is a long and detailed example of how to use credit cards responsibly, however, the bottom line is that you must establish a responsible credit practice to help improve your credit.
Key ways to improve your credit score by using credit card
1. Importance of timely payments
Your payment history is a big factor in determining your credit score. Paying on time, or even early, on your credit card bill each month is a good way to show that you are a responsible consumer and assist in a better credit score.
2. Credit utilisation ratio low
Try to keep this ratio lower than 30% since more credit use can indicate reliance on credit and harm your score. Tracking your spend and making multiple payments in a billing cycle will help you to maintain this ratio and to keep it low.
3. Pay more than minimum
While paying the minimum amount owed keeps your account intact, it does add interest on the amount you owe. Paying off the debt in its entirety is not only a step towards saving in interest owed, it is also a sign of good credit behaviour.
4. Reduce credit applications
If you have several applications on your credit file in a condensed time, your credit score can decrease. To preserve your credit file, avoid new applications unless required as your score is potentially affected by further the number of pulls on your credit report.
5. Keep credit cards active
Your credit score is affected by the average age of your accounts. There is no harm keeping your older credit cards activated even if they were not used frequently. Having older credit accounts open can potentially raise your credit score. Keeping them open raises the average age of your credit accounts.
6. Diversify your credit profile
Having various types of credit, including credit cards, personal loans, and auto loans, can improve your credit score as long as all credit is managed appropriately.
7. Monitor your credit reports
Regularly viewing your credit reports helps to easily identify errors or fraudulent activity that could negatively impact your credit score. To ensure that your credit information stays accurate, you would want to report the discrepancy in a timely manner.
8. Consider secured credit cards
A secured credit card, which is secured by a savings account deposit, allows people who are new to credit or trying to repair a credit history an opportunity to show they are responsible. Responsible use of a secured card may also help establish eligibility for other unsecured credit products in the future.
In conclusion, building a credit score is a gradual process necessitating discipline and sound financial habits. You can build and improve your credit profile and create better financial opportunities in the future by using credit cards responsibly.
Disclaimer: Mint has a tie-up with fin-techs for providing credit, you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.