Using Credit Cards To Build A Better Credit Rating
Almost everyone needs to work on their credit score at some point. Some people may have no credit history at all since they’ve never engaged in the types of transactions that are recorded in credit reports. This lack of information may prevent them from securing loans. Others may have endured circumstances that created negative information in their credit files. Still, others may already have a good rating, but wish to improve it to secure better loan and insurance rates. No matter the circumstance, credit cards can almost always be used to build or improve one’s credit rating.
When the goal is to build one’s credit rating, it is important to start with the right type of cards. While credit cards and prepaid debit cards may seem similar, since both allow one to make purchases, their resemblance is faint at best. Debit cards do not report to credit bureaus, therefore debit cards are usually of no benefit when aiming to build a credit score. Only a credit card will actually help in building one’s credit reputation.
Each credit card company reports information to one, two, or three central credit bureaus. Information is first recorded when the card is granted. Then, each time a payment is made or missed, information is also recorded. Such information usually remains on file for seven years, depending upon local laws. This information creates the meat of most credit reports. Records of things like bankruptcy, legal judgments, installment loans, and mortgages are also typically recorded in a credit report.
When one has good credit, there are typically many offers available for low-interest cards. People in this category have the luxury of choice. Even so, it’s wise to check the fine print of all offers. Avoid cards with unusual monthly or annual fees, as they can turn into a slow drain on one’s available funds.
Those with no credit or with bad credit will need to look harder for offers. Be careful not to accept offers from predatory companies. Predatory companies have such high-interest rates and fees that it becomes all but impossible to pay off balances. The danger outweighs the benefits of such offers. Read all fine print on all offers.
If it proves too difficult to secure a major bank card, there are other options. Contact a local bank or credit union. They may offer their regular customers better rates and terms. Consider also applying for a department store credit card, gas station credit card, or a secured credit card, as long as they report to one or more of the central credit bureaus.
If an application is denied, a letter will arrive declaring the reason. This information can help one make better choices the next time. Reasons may range from insufficient income to insufficient credit history.
When applying for new credit, go slowly. Each time one applies for any kind of credit, this information is recorded in the credit report. When a sudden influx of applications registers on the report, credit bureaus often reduce the overall score temporarily, possibly out of fear of over-extension.
It takes time, but by making each payment on time the numbers will improve. Over months or years of this, bigger improvements should be seen. There is always hope. This careful approach to using charge cards can lead to a more secure future.