The easiest way to use credit cards to build credit is to simply get a couple of credit cards, use them, and pay them off. Credit cards do two things for a credit rating: they show that a person can borrow money and pay it back and they expand that person’s available credit. The latter is important because one factor credit bureaus use to calculate a credit score is your credit utilization ratio, and having a lot of available credit while using only a small portion of it will help that factor.
According to an article on MSN Money, it’s not necessary to carry a credit card balance and pay interest to build credit with a credit card. It is more important to simply pay on time and not miss a payment to keep credit moving in a positive direction.
If you are starting with no credit or with bad credit, you will not be able to get a regular credit card immediately to build your credit with, but you can work up to it with another type of credit card. You can get a secured credit card, which is much easier to obtain, use it and pay on time and eventually you will get offers for other credit cards.
Keeping Your Credit Healthy
Once you build your credit, maintaining it can sometimes be challenging. One important step to maintaining credit health is to monitor your credit report. You can get a copy of your credit report from any of the big three credit bureaus, like Experian, or you can go to any one of a number of online sources that will let you check all three credit reports at once. When you check the report, it’s important to look at your score, but you also want to be on the lookout for any inaccuracies or surprises.
In an extreme case, you might find evidence of identity theft, in which case you will need to contact the authorities and the credit bureaus immediately to get charges that do not belong eliminated from your report. More frequently, you might find a disputed charge or late payment that you didn’t know you had, which you can petition to be removed from the report through the credit bureau website. Cleaning up little pieces of misinformation like that can improve your credit score considerably.
The other thing you can do to maintain your credit health is simply use credit responsibly.
High Credit Score Advantages
A high credit score is tremendously beneficial; in fact it’s hard to do many things without a maintaining a good credit score. If your credit score is not high enough, you will not qualify for a mortgage, a car loan, or a standard credit card. You might even have trouble getting a lease with a low credit score.
The higher your credit score goes, the better the interest rate you will qualify for with loans and credit cards. The differences can be significant, saving you thousands of dollars a year in interest.
Bankruptcy, Credit Rating and Credit Cards
If you have a bankruptcy, you will have to cease using all credit cards listed on the bankruptcy. Any card that has a balance on it will need to be listed on the bankruptcy, so any credit card you carry a balance on at the time of bankruptcy will be terminated.
If you have other cards that have no balance, you do not need to list them on the bankruptcy or report your bankruptcy to them. They may find out about it by checking your credit report, but even if they do, they may keep your credit line open to retain your business. In that case, they would be likely to reduce the credit limit on your account and raise your credit card interest rate to offset their increased risk.
A bankruptcy will bring down your credit rating significantly, so you may struggle to get new credit cards after bankruptcy.
In some cases, you will need to start over with secured cards to build your credit again. Even if you can still get a new regular credit card, it will most likely have a high interest rate, at least until you reestablish good credit.
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