Can you use your credit card to improve credit score? Absolutely!
Some people may not believe this is possible. After all, they think that credit cards are probably the ones that got you in a tough situation. Would really want to use it more so it can improve what it destroyed in the first place?
If you know what you’re doing, this is possible. Instead of letting your credit cards destroy your finances, you can use it for restoration. Learn how to use it properly. We are all used to using credit cards anyway. We can’t seem to stop using it even if it puts us in danger of having a lot of debts. In fact, data reveals that the average American owns 4 credit cards. With that many cards, it’s not hard for us to use it recklessly.
But we can learn to break bad habits. Since we are all used to credit cards, we have to. If we want to continue using it without endangering our finances, we have to become smart credit card users.
3 ways you can improve credit score using your credit card
Do you know what’s great about learning how to use credit cards wisely? You can improve credit score at the same time. By correctly the bad financial habits associated with your use of your cards, you’re also giving yourself a good credit score in the process.
So how can you use your credit cards specifically to boost your credit score?
Make timely payments
This is rule number 1 when you are using your credit card. Or if you want to borrow any form of debt. You have to be responsible when it comes to your payments. Make sure that you will not be late on any of your payments. If you are consistently late, that will reflect on your credit score badly. If you were trying to improve your credit score, you would have failed.
The payment behavior is usually a big percentage of your credit score. If you have just one delinquent account, that can pull your score down. While this is true for all types of debt, it’s credit cards that pose the highest risk of accumulating. And the average American also owes more than one. You can easily forget the due date until it’s right upon you. So you have to be certain that you are keeping an eye out for the due date of your cards. Set up reminders because every timely payment will affect your score in a good way.
Pay more than the minimum requirement
This is probably one of the most basic things that you can do. You have to pay more than the stated minimum requirements in your credit card bill. Why? Because if you stick to the minimum payment requirement, it will take you forever to completely pay off your debts. You see, only a small portion of the minimum goes to your principal balance. The rest goes to the interest. That means sticking to the minimum requirement will only chip away a small part of your debt. Your balance is still high. That affects your credit score.
If you pay more than the minimum, you can pay off more of your balance. The more it goes down, the more it can improve credit score. It will make your credit utilization rate go down.
Get a higher credit limit
Now that the credit utilization rate is mentioned, there’s also something that you can do about it. If you get a higher credit limit, it will have a positive effect on your credit score.
You see, improving your credit utilization ratio means your current balance should only be 30% of your credit limit. If your balance now is $5,000 and your credit limit is $12,000, that puts your ratio to be above 30%. What if you talk to your creditor and ask them to increase your limit to $20,000? That will put your ratio way below the ideal rate. That can pull your credit score up.
All you have to do is to call your credit card company and ask them to adjust your limit. Of course, you have to be careful when you ask this. Make sure that you will not use the credit limit as an excuse to use it more. Remember, you’re trying to improve your credit score. You have to develop the right habits that will help with your goal to improve it.
How to maintain a good credit score
Once you have improved your credit score, what’s next?
You can still use your credit cards but this time, it should help you maintain a good credit score. Because this score will not stay that way permanently. It will keep on changing depending on how you manage your credit accounts.
For instance, you may have started 2020 with a good credit score. But with everything that happened as we went further into the year, things have probably affected your score. Reports reveal that almost 8 out of 10 credit card holders feel like they won’t be able to afford the payments for long. They said that they don’t even think they can pay off the minimum requirement. If this is the case, then a lot of credit scores will be going down.
This is why you have to create a plan that will help you maintain a good credit score. Here are some tips that you can use.
Plan your credit spending
To maintain the improvement in your credit score, you have to keep on using credit. But it only has a positive effect if you use credit properly. To do that, you have to plan your credit spending. It has to be part of your monthly budget. This way, you already have the funds set aside for the payments. It can act as the limit too. Like if you have a budget of $500 for your credit cards, you can’t go beyond that. And once you get your paycheck, you have to set aside the budget for it. That way, once the billing statement arrives, you can pay it off immediately.
Don’t open too many credit cards
Another thing that you should do is to avoid opening too many credit cards. If you do have 4 credit cards like the average American, make sure you are really using all of those. If not, these will just cost you in terms of annual fees and other charges.
It’s okay to own a lot of credit cards but only if you are really using them regularly. If not, then there’s no sense in opening more. If you can’t take advantage of the rewards, then stick to the cards that you currently have. The more you own, the harder it is to keep track of all of them.
Understand your options
Finally, you have to know your options if you don’t want to waste the improvement in your credit score. Like what if you can’t afford to pay off your credit card debt? If you stop paying, that can make your credit score go down. But if you talk to the credit card company, they might agree to put you in a financial hardship program. This means you can stop paying your debts for a specific time without incurring penalties. That’s one option that you can have.
Make sure that you understand your credit card enough to know all your options. That way, no matter what situation you are in, you know how to improve it. Because if you can improve your credit card situation, your credit score follows.