There is no such thing as a credit cards score, but how you use your credit cards will determine your personal credit score. This three digit score is really the lifeblood of your financial life and has an unbelievable impact on mist aspects of your adult life.
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Having the right credit card and using it the best way possible has a major influence on your credit score. Websites such as MyMoney.gov and SmartMoney will teach you the most effective ways to use that card.
How is a credit score determined?
A credit score is the analysis of a person’s open lines of credit like loans and credit cards. This analysis is expressed in a three-digit number. The data that is analyzed is provided by the three credit bureaus. The three credit bureaus are TransUnion, Equifax, and Experian. This score gives banks and other organizations an idea about a person’s creditworthiness. Creditworthiness suggests how likely someone is to pay their bills.
For a long time, the only organization that was really concerned with a person’s credit score were banks and credit card providers. Today there are more organizations that are looking to credit scores to determine how they will do business with someone including cell phone providers, landlords, insurance providers, and government agencies. In addition, potential employers might look at your credit history, not your credit score, to determine if a person will get a job with their company.
Are credit scores fair?
The main drawback to a credit score is that it has no context. If someone has a low credit score that shows a bank or credit card provider that sometime in the past they had issues making loan or credit card monthly payments, but it does not explain why. There is a big difference between someone that chose to go on a spending spree at the mall instead on paying their bill that month and someone that was out of work and had to decide between paying their credit card and mortgage payment that month.
So it is not very fair that someone who had a couple of bad years financially will have to pay for many more years until their credit score is rebuilt. The down turn of the economy has had a wide negative effect on most people’s credit scores so now lenders are more willing to make exceptions and are starting to ask about the situations that caused the low score instead of just taking the number at face value.
What can I do if I have damaged my credit score?
One way you can repair your credit score with a credit card is by getting a secured credit card. This card is specifically designed for someone that has either no credit score or a poor one. This card requires the cardholder to put down a deposit as a security deposit to prevent them from defaulting on the card.
Credit card limits are determined by the amount of the deposit. When you apply for a secured credit card, most of them require a deposit of at least $200. If the cardholder wants their credit limit to be higher, all they have to do is add to their initial deposit. The card rovider will occasionally review the cardholder’s account and after a certain amount of time, usually at least a year, if the provider determines that the cardholder has handled the account responsibly they will be upgraded to a normal unsecured credit card.
The reason a secured credit card can help improve someone’s credit score is because the card provider reports directly to the credit bureaus. This means that the bureaus will take this activity into consideration when determining their credit score.
If the cardholder is upgraded to a normal credit card or chooses to close their credit card account, their security deposit will be returned. Depending on the type of account that the deposit was kept in the returned amount could actually be more than the initial deposit. Most card providers keep the deposit in a normal savings account or a money market savings account.
There are a few providers that choose to put the deposit in a Certificate of Deposit. This type of account might yield more in interest, but requires the account to be open for a certain amount of time. If the cardholder tries to cancel the account before this time is reached, they will be charged fees on their deposit.
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