Using Credit Cards to Build Credit

Credit Cards in different colors

While many people see credit cards as the path towards fiscal irresponsibility, they can actually help you build business and personal credit. To reap the benefits, though, you need to know how to use them to your advantage.

Understanding Credit Cards

It is important to know that card issuers report payments to the three major credit bureaus. Whenever you make a payment on your account, this information gets reported to Experian, Equifax and TransUnion.

Every card company reports at different times of the month, though, so you will need to contact your issuer to find out when they report to the credit bureaus. It may take several days for your payment to post to your account so plan in advance. As long as your payment is posted before the report is issued, you have taken your first step toward building positive credit.

Use Your Card Often

To build credit, you will have to use your card often. If you do not make charges, you will only receive a small boost for having a card open. Use your card to make your every day purchases, such as gas and groceries, but do not spend money you don’t have. If you are using your cars for day-to-day purchases, you should have the money to cover these expenses and pay off the balance every month.

Pay Your Balance On Time

Make sure to keep money to pay off your credit card balance in your bank account. Then, when your statement is due, you can transfer money directly to your account.

Depending on your credit card company, it may take a couple days for the payment to go through, so make sure you account for this. It is imperative you make payments on-time to avoid fees and negative reports to the credit bureaus. If you can pay your full balance on time, you also won’t accrue interest.

Not only will you increase your credit score with full, on-time payments, you can also generate cash rewards and have purchase protections when you use your card.

Get a Card Limit Increase

After six months of regular use, you should be eligible for a credit increase. Some card issuers will automatically increase your limit, while others will require you to call and inquire. A higher limit will increase your credit score, as your debt utilization ratio will drop, which is another factor that influences your score.

Maintain Healthy Spending Habits

Once you develop these good spending habits, maintain them. The longevity of your accounts has a major impact on your credit score. The longer you maintain a credit card, the better.

About Bill Hardekopf

Bill Hardekopf is the CEO of BillSaver.com and covers the credit card industry from all perspectives. Bill has been involved with personal finance for over 15 years. He is a frequent contributor to Forbes, The Street and The Christian Science Monitor.
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