You have probably read horror stories how someone’s credit card usage has ruin his/her life. The truth is that a credit card is a “tool,” and like any other tool it could work to your benefit or against you — depending on how you use it.
In addition to helping you buy stuff before you can afford them, credit cards can also help you improve your credit score. That, of course, presumes you use them in a responsible manner. And that’s what today’s article is all about — how to use a credit card to improve your credit score. Read on for details…
1. Pay on Time
This is rather straightforward — if you keep paying your credit card bill on time, your credit score will increase. In fact, your payment history is the most important factor that accounts for 35 percent of your credit score.
In order not to miss a single payment, you are best off automating it. Alternatively, you can set alerts to be reminded when it’s the time to pay your dues. It’s super-important and it’s worth all the extra effort.
2. Pay Off Your Debt
Or least keep it manageable. This will involve making regular monthly payments that are more than the minimum required. You are best off if you could pay it all, with no balances to carry from one month to the other.
The second most important factor contributing to your credit score is the credit utilization ratio; it shows how much you owe versus how much credit you have. If you can pay every credit card bill, there is no need to worry about this. Otherwise, keep this number below 30 percent.
3. Ask for a Credit Limit Increase
Related to the previous point, if you can’t pay down your debt immediately – you can manage the credit utilization ratio by asking for a credit limit increase to keep it below 30 percent (or whatever you can get).
Call your credit card company or visit their local branch to make this happen. If you’ve been reasonably responsible with your credit card usage, they will make this happen for you.
4. Keep Your Accounts Open
The math here is rather simple — when you close a credit card account, it lowers the amount of credit you have, thus raising your credit utilization ratio. You don’t want this to happen as it will have a negative effect on your credit score.
So try keeping all your accounts open. If that’s not an option, see if you can replace some credit card you don’t use with another one that could, say, give you points or cash-back on certain purchases.
This is especially important for credit cards you’ve been carrying around for the longest. It is crucial to keep those accounts alive, so again — if you seldom use these cards (or just one card) — see if you can replace it/them with something better. Just make sure not to go for a card with high annual fee, except if you really want it (because of points and extra features such cards offer).