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Building Credit with Credit Cards

Managing Credit Cards

In today’s world, credit cards make life flow smoothly and are a vital part of the way we both spend and manage our money. If you want to see a movie, one quick swipe of plastic opens the door. In fact, credit cards are a necessary tool to establish, and even build credit. If you apply for a mortgage, or a car loan, your credit card history will go a long way toward getting you approved. However, managing credit cards can be much more complex than people think. Each credit card is a separate debt. How you manage these debts can dramatically affect your credit score, and determine your ability to be approved for a home or car.

The ease of using a credit card can be a double-edged sword. If not carefully managed, credit cards can negatively affect your goal of building credit. If you don’t keep track of purchases, it’s incredibly easy to charge more than you anticipated and end up with a larger than intended balance.

It’s important to understand the effect balances and payments have on your credit score to help you make effective credit card management decisions. Each card likely has a different credit limit and interest rate. Consider the following tips to help manage your credit cards effectively and how to build credit with a credit card.

Tip #1: Payments

The first rule to understand about credit cards is how payments work. When you make a payment on-time, you raise your credit score and you are building credit. Late payments reduce your score. It is very important to make your credit card payments on time.

Tip #2: Utilization Ratio

The next rule to understand is the ratio of credit card balance to the maximum balance. The credit rating companies compare the maximum available balance to the current balance. For example, if you have a card with a maximum balance of $2,500.00 and your balance is $1,000.00; the utilization rate is 40%. Basically, the lower the utilization rate, the higher your credit score. Your utilization ratio can be reduced when you lower your balance. The important take-away is to remember, on-time payments and a low utilization ratio will ensure a higher credit score and help with building credit.

Tip #3: Card Age

Believe it or not, the age of your credit cards are an important factor if they have been used consistently. Older cards with current payments and a low utilization ratio reflect stability and consistency to the credit rating companies. If you are constantly taking out new credit cards, the agencies can see this as evidence of financial trouble.

Building Credit Over Time

One of the most important things that you can do in your adult life is build up good credit over time. Good credit opens up a lot of doors financially while getting you better rates on your accounts. Building credit is a process, but it is well worth doing.

You can build credit in a reliable and positive fashion no matter what your current credit score is. As long as you are willing to be diligent with your efforts and stay within your means, you can improve on your situation.

Essentially, your credit score is a tangible indicator of your reliability and ability to pay back debt. As this score is tracked, it is used for a host of different qualifications, including housing and car ownership. Building up your score simply requires a bit of streamlining, as well as practical application.

To begin with, make sure that all of your cards have been paid off and that your accounts are even. Once you have paid off credit debt, then cancel all of your cards but one or two. Note- it is important to point out that cancelling a card is not the same as cancelling debt, so pay things off.

Then, use these cards to make every purchase. Promptly meet your payments and pay in advance to get ahead, and consistently do it from then on using those cards. Using online banking is a fantastic way to immediately pay off debt using transfers, giving you full control of the situation.

By making the effort to focus your expenditures on one or two lines of credit and then paying them off quickly every time, your score will improve. It may seem simple, because it is! Simply and streamline and be responsible, and your credit will get better.

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