Use Credit Cards to Build Credit
The average household credit card debt for Americans is about $16.5 thousand dollars. For that reason alone some people stay away from credit cards because there’s no better way to avoid credit card debt than not having a credit card in the first place.
That used to be me. I heard the stories about how I Credit Cards work, about how eventually you’re no longer paying for the stuff you bought you’re also paying this interest that snowballs every month you put it off on top of that also. That’s why I tried to pay for everything in cash. Then one day I realized for some cars and houses it didn’t make sense to pay for them in cash at all because you’d potentially be saving for your entire lifetime. To get those things I was going to have to show the banks I was responsible and a safe person to loan money to. I needed to improve (establish in my case) my credit score to be able to have access to these things.
Credit Score shows banks how responsible you are in paying back the money you owe.
It ranges from 300-850 with the best scores being about 740. The lower your score the higher your interest rate because of the likelihood you won’t pay back the loan. There are 5 factors that affect your credit score.
- Length of credit history
- Utilization rate – what percentage of your credit do you use?
- On time payments
- Having a mix of credit. Different types of credit cards, auto loans, lease etc.
- Total Credit Inquiries – lower your score for about 6 months because the banks feel as if your looking for as much money as possible
There are 3 steps for building your credit score using credit cards.
Step 1 Start with a secured credit card – Capital 1 will give a card to anyone looking to start building credit. Sometimes you may need put down money as collateral against the card. If you don’t pay off the card, they have the money to pay it off with. You’ll probably have a $300 to $500 limit. This doesn’t mean you have free money so don’t spend any differently that you used to. Make sure you pay it in full every month. Accumulating interest to build credit if FALSE, just pay it off. In 4-6 months you should have established a credit history, then you can move on to step 2. Step 2 Apply for an unsecured credit card. Unsecured means they aren’t secured by collateral so you don’t need to put any money down. After paying it off for a full year you’re ready for the next step. Step 3 Apply for a charge card, they have no limits so it doesn’t affect your utilization rate. Want 7 years of bad luck? Miss a credit card payment. A late payment stays on your credit report for 7 years. Question: How important has having Credit been to you as an adult? How would building yours improve your life? Leave A Comment Below.