Using credit cards to build your credit score can be a very effective means to establish good financial habits and credit-worthiness. But, you have to be very careful as credit cards, if used irresponsibly, can wreck your credit rating in a very short period of time, and cause damage that will take years to overcome. When used responsibly, however, they have the reverse effect…a great credit score, in a short amount of time.Getting Started With Credit CardsOne of the more common problems for people when they’re just starting out with credit cards is that they have little or no credit history. It’s a Catch-22, because how can you get a credit history without a credit card? Fortunately, credit card companies have become much more open to issuing credit cards to younger consumers, or those with little credit history. Here are some other options:
Secured Credit CardsSecured credit cards commonly require you to maintain a balance in a checking or savings account that can serve as “collateral” in the event that you miss or are late on a payment. For example, a $500 line of credit must be balanced with a $500 balance in the account.
Credit Cards Issued by RetailersCredit cards that are issued by major retailers like Sears or Target (for example), are typically easier to get because those stores want you to do business with them. They often come with a very low credit limit, but if used responsibly, they can help to establish your credit score, and make you a more attractive risk for the major credit cards.
Getting a Co-SignerA co-signer with good credit, typically a parent, is another common way to build your own credit score. Basically, they are liable for your charges if you fail to comply with the terms of the payment plan. But if you handle credit well, they may give you the option of removing the co-signer’s name from the account.Smart Credit Card Management Habits
Pay your Bills on Time and Pay More than the MinimumThis rule is listed first because it is the single biggest factor in responsible credit card usage. The importance of honoring this rule cannot be overstated. Paying your bill on time is the easiest way to indicate to lenders that you are a conscientious and reliable manager of credit.Paying more than the minimum is also an excellent habit to get into, as the minimum payment generally required is only about 2% of the balance and most of that will go to the interest, and very little is applied towards the principal.
Secured Credit CardsSecured credit cards commonly require you to maintain a balance in a checking or savings account that can serve as “collateral” in the event that you miss or are late on a payment. For example, a $500 line of credit must be balanced with a $500 balance in the account.
Credit Cards Issued by RetailersCredit cards that are issued by major retailers like Sears or Target (for example), are typically easier to get because those stores want you to do business with them. They often come with a very low credit limit, but if used responsibly, they can help to establish your credit score, and make you a more attractive risk for the major credit cards.
Getting a Co-SignerA co-signer with good credit, typically a parent, is another common way to build your own credit score. Basically, they are liable for your charges if you fail to comply with the terms of the payment plan. But if you handle credit well, they may give you the option of removing the co-signer’s name from the account.Smart Credit Card Management Habits
Pay your Bills on Time and Pay More than the MinimumThis rule is listed first because it is the single biggest factor in responsible credit card usage. The importance of honoring this rule cannot be overstated. Paying your bill on time is the easiest way to indicate to lenders that you are a conscientious and reliable manager of credit.Paying more than the minimum is also an excellent habit to get into, as the minimum payment generally required is only about 2% of the balance and most of that will go to the interest, and very little is applied towards the principal.
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