Credit cards are a great way to boost your credit score and you don't need a high score to get approved for a loan. However, you shouldn't use credit cards to make large purchases. Don't pay high fees, and close any cards you don't need anymore. Also, it's best to not apply for large loans until you have paid off your credit card debt. It may sound complicated, but it's really quite easy.
Credit is not built by paying bills.
Despite the common myth, paying your bills on time is not the best way to build credit. Credit scores are determined by data reported to credit bureaus, and not the amount of the payment. You can't build credit just by paying your cable bill and gym membership. Certain recurring charges, like telephone bills and insurance premiums can actually hurt your credit score.
To avoid high credit utilization, you should not charge more than you have in the bank. Even though you may think you can repay it later, the downside to overspending is that your bank account will not be sufficient to cover the charges if you lose a job or experience an emergency. Having credit card debt is something no one ever intends to have, but it creeps up on you slowly.
How to get an unsecured credit card
An unsecured credit card can be a great way to increase your credit score. However, you must be sure that you can responsibly use the card. Most unsecured cards are only available to people with good to excellent credit. It is important to note that the credit card company will consider many other factors besides your credit score. You are more likely to get approved if you have a stable income and clean credit reports.
Another option to build credit is secured credit cards. Secured credit cards require you to put up a deposit, which often becomes your credit limit. You will also find that they have lower credit limit than unsecured ones. You can often get your deposit back earlier if you spend responsibly. Secured credit cards may also be used for online purchases.
Empowering an authorized user to someone else's accounts
An authorized user can improve your credit report by being added to someone else's credit card. Authorized users are able to build positive credit habits, such as timely payments and low interest compared with available credit. If you aren't responsible for your spending, you might consider closing the account.
Although adding an authorized user to an account can improve your credit score, it is not always a good idea. Authorized users must have the trust and consent of the account holder. This way, they can raise their credit score without causing damage to the original account holder's score.
Reporting good behavior helps build credit
Your credit score will improve if you report good credit behavior when using a credit card. Your credit score is calculated based on the amount of available credit on your account. Maximizing your credit card balances is a good idea. You can also lower your reported credit utilization by paying off your balances. This will also lower your overall utilization, which is good for your credit score. Your goal should be to keep your utilization rate at 1%.