Building Credit Using Credit Cards

A Step By Step Guide to Use Credit Cards to Build Credit

Credit cards can be a wonderful gift if used correctly. They offer you a chance to keep track of expenses, lump all your monthly expenses into one single payment, and offers you the chance to build credit. Establishing credit is essential to adulthood because your credit score is a large determinant of how much interest you will pay on big purchases like a car or house. Having a high credit score can save you thousands of dollars over your lifetime.

What is a Credit Score

Your Credit Score shows banks how responsible you are in paying back money you owe. It ranges from 300-850 with better scores being about 740. The lower your score the higher your interest rate because of the likelihood you won’t pay back a loan.

5 Factors that Influence Your Credit Score

  1. Length of credit history
  2. Utilization rate – what percentage of your credit do you use?
  3. On time payments
  4. Having a mix of credit. Different types of credit cards, auto loans, lease etc.
  5. Total Credit Inquiries – lower your score for about 6 months because the banks feel as if your looking for as much money as possible

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 than 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 positively impacts your utilization rate.

Bonus: Think you know everything about credit cards? Learn the top 5 credit card myths.

Want 7 years of bad luck? Miss a credit card payment. A late payment stays on your credit report for 7 years.

The Benefits of Credit Cards

Because credit cards are the fastest way to build credit it’s important that we learn about them. Click here to learn about the benefits of having a credit card

Question: How important has having Credit been to you as an adult? How would building yours improve your life? Leave a comment Below.