Tips for Building & Maintaining Credit
Having a good credit score is important for your financial life. It lets you qualify for loans at lower interest rates as well as shows lenders that you make payments on time and manage your credit responsibly. This is important if you are considering ever buying a home.
One of the simplest ways to establish a good credit score is with credit cards. Using a credit card wisely can build your credit payment history and help keep your score high. The operative word there is wisely ... there are many potential pitfalls when using revolving credit like credit cards. Here are some tips for building and maintaining a good credit history using credit cards.
Why Build Credit with a Credit Card?
Credit cards offer a revolving credit line that you can borrow against for purchases and pay back with interest. Your credit card issuer will qualify you for a specific credit limit and interest rate. By using the credit and making regular, on-time payments each month, you can build a credit payment history. Credit reporting bureaus use your payment history, among many other things, to determine your credit score. The higher your score, the better interest rates you will be offered when you apply for a loan.
How to Use Your Credit Card Wisely
Here are some tips on how you can use a credit card to improve your credit. They also help you avoid turning your credit card balances into long-term debt.
- Keep Utilization Under 30%: Your credit card lender will set a revolving credit limit that you can borrow against. Try to keep your balance under 30% of the issued credit. This will allow you to build a positive credit history. If you use more than 30%, or if you use up to the maximum of your credit, you may encounter negative impact to your credit score, says Investopedia.com.
- Make Payments on Time: Paying your credit card bill on time also helps you build a good credit history. Be sure to know your payment due date so you can avoid incurring any late fees and negative impact to your credit score each month, according to Business Insider.com. An effective way to ensure your bills are paid on time is to set up automatic payments through your financial institution. This will keep your accounts up to date and provide you with peace of mind.
- Pay Balance in Full: Paying off your credit card balance each month not only saves you money but, if you do so before the next billing statement starts, you can avoid paying interest. That is because if your credit card carries a balance into the next month’s billing cycle, you will get charged interest on that balance, says Business Insider. Keep in mind if you default on your credit card payments, you run the risk of losing any accumulated rewards, says Nerdwallet.com.
- Upgrade to a Better Credit Card: As your credit score rises, consider exploring opportunities with other credit card issuers. Use your creditworthiness to see what other financial institutions offer. You may be able to obtain a credit card with a lower interest rate, a higher limit and better rewards. By upgrading your credit card, you can save more and earn more rewards, says Bankrate.com.
What to Look for in a Credit Card
If you are looking for your first credit card, there are many things to consider. Keep in mind that with your first card you may receive a higher interest rate than expected because you have no established credit history. Start your search at your current financial institution to see what credit card products are available and ask how they can help you establish your credit history. At Travis Credit Union, we offer products and services that can help you boost your credit score.
Another way to get that first credit card and begin establishing a credit history is through a secured credit card, which is offered by some financial institutions, including TCU. This type of account requires that you use your own funds as collateral to cover the card’s credit limit, which could be $500 or $1,000. These secured funds are held at your financial institution until you close the card. This ensures that your credit card balance will always be covered by your funds on hand.
One more way to obtain a credit card is to be added as an authorized user to someone else’s existing credit card account, which is usually a parent or spouse. This is especially helpful if that cardholder has an excellent credit score and a good interest rate. This will let you gain experience using a credit card while it builds your credit history, as well.
TCU Can Help
Travis Credit Union can help you build your credit history today so you can save money tomorrow. Our Platinum Visa offers competitive rates along with reward points on purchases. If you want to learn how you can borrow better, our Financial Wellness Hub will help you understand how to plan, save, spend and borrow responsibly.
Also, you can read our Financial Wellness Blogs to learn more about credit and other personal money matters. Get started today.