Having and using a credit card these days is not unusual. Many people find that a credit card is useful for helping them cover unexpected bills and expenses, buy things that are not within their usual budget, or just have an emergency line of credit available for when they need it. However, spending on a credit card can lead to financial difficulty and may even damage your credit score without the right strategy. If you want to improve your credit score, then it’s important to consider how you are using your credit card. Lenders look out for a few different things when it comes to your credit card usage, and even if you are up to date on payments there are a few things that could harm your credit rating. Whether you have recently been accepted for a new credit card or have had one for a while and want to put it to work for you to improve your credit score, here’s what you can do.
Change the Payment Due Date
Before you begin paying for things with your credit card, take a look at the payment due date and make sure that it is suitable for you. Most of the time it will be a credit card payment due date like the 1st of the month, but this can be changed if another date suits you better. Ideally, you should change the payment due date to your payday or shortly after so that you will always have the funds available to make the payment. Check out Tally’s blog for more information on the benefits of changing the credit card payment due date and how to do it. If you want to get out of credit card debt and start building your credit rating, Tally can help with a low-interest line of credit that you can use to consolidate your cards leaving you with one monthly payment.
Pay the Balance in Full Each Month
Paying the balance in full each month will help you build your credit score faster since this demonstrates to lenders that the credit is affordable to you, and that you are not relying on it to make purchases. Clearing your balance every month will also improve your credit utilization ratio; another aspect that goes into determining your credit score. If you cannot pay the entire balance off, then it is a good idea to repay as much as you can each month and avoid using your card until you get to a point where you can start to comfortably repay the balance and bring it back down to $0 monthly. Always pay more than the minimum payment.
Keep Your Credit Utilization Low
When you have a few thousand dollars available to spend on a credit card, it can be all too tempting to use as much of them as possible to pay for things that you might not be able to afford otherwise. However, all this does is harm your credit score as even if you are up to date with making your monthly payments, lenders might view you as being too reliant on credit. Along with this, when you have a large balance on your credit card, lenders might be reluctant to lend you anymore until you have repaid all or most of it. Ideally, you shouldn’t use more than 30% of the available credit on your card at any one time.
Use Your Credit Card for Everyday Spending
If your sole purpose for your credit card right now is to use it to improve your credit rating, the best way that you can do this is to use it for the things that you were going to buy otherwise. For example, you could use your credit card to get groceries, pay for your Amazon and Netflix subscriptions or for household goods that you need to get. This way, you won’t be putting yourself at financial risk as you will only be using the card to buy things that you would have had cash on hand to spend anyway. Keep the cash to one side and use it to repay the balance of the credit card when the bill is due.
Increase Your Limit Carefully
If you have been using your credit card wisely and have never missed a payment, then chances are that you are going to be offered a credit limit increase at some point. However, it’s important to be careful when deciding whether or not to accept this increase. Accepting it means that you have access to more credit, but this does not always mean that you should use it. In some cases, a higher credit limit can boost your score even if you don’t take advantage of it by making purchases. This is because once your limit is increased, your credit card balance will be smaller in comparison to the total amount of credit that you have available, ultimately reducing your debt utilization ratio.
Make Payments Early
If you think that you might go over 30% of your credit card limit one month, then a good way to stay on top of this is to make a payment early. You don’t have to pay off the entire balance but paying it down as much as you can before the bill is due can help you keep your credit utilization low. Bear in mind that your credit card provider will report your credit card use to the three main credit bureaus at any point during the month, so paying early can make a difference when it comes to how your total credit utilization is reported.
Take Advantage of Balance Transfers
Taking advantage of balance transfer credit cards can not only be an ideal way to keep things cheaper when managing your credit card, but it can also improve your credit score if you are accepted for a new balance transfer card. A recent acceptance from a lender can have a positive impact on your credit rating, since it shows lenders that others view you as responsible and low risk enough to provide further credit to. However, being rejected for a balance transfer credit card can have the opposite effect, so it’s a good idea to use an eligibility checker first, so that there is no impact on your credit rating while you find out how likely you are to be accepted.
Check Your Credit Score
Along with doing all of the above to use your credit card to try and improve your credit rating, it’s a good idea to use various tools to check your credit score on a regular basis. Ideally, you should check your score with all three main credit bureaus. This is easier than ever these days with tools that allow you to check all three at the same time. By checking your credit score regularly, you can see how your actions with your credit card are impacting your score either positively or negatively, giving you information that you can use to make the necessary changes. Along with this, it also allows you to spot any errors or mistakes that might be damaging your score quickly.
A credit card isn’t just a good thing to have if you need to cover an unexpected purchase – you can also use one to build your credit score over time.