Credit cards are great tools to improve your credit score even though most people treat them as a source of money to make purchases. Here is how to use them to have a higher credit score.
1. Unpaid Balances Damage Credit Score
Most people use their credit cards to make purchases but do not take care of the small balances that keep running in their credit cards. These unpaid balances continue to lower their credit score. Take a look at these small unpaid balances and try to pay them off as soon as possible to improve your credit score.
2. Use Credit Cards Judiciously
Credit cards are important as they tell loan managers that you are making use of credit and using it on a regular basis. However, it is essential for you to make timely payments of debts that you owe without missing or delaying payment of installments to improve your credit score. This helps you in the long run as chances of securing a loan from a bank increases considerably.
3. Stay Inside the Credit Card Limit
All credit cards carry an upper limit of withdrawal depending upon the income and the credit score of the individual. There is a fee for spending beyond your limit. There is also late fee charge that is applied by the credit card company if you fail to pay up the money withdrawn within the stipulated time period. Make sure that you stay inside your credit card limit to improve your finances.
4. Use Limited Number of Credit Cards
Millions of people make use of not one or two but several cards. Too many open accounts can make it a headache for you to keep track of running balances. You also tend to overspend and forget to pay on time. Keep only 1-2 credit cards and use them prudently to avoid getting confused with so many statements.
5. Do Not Overuse Credit Cards
Using credit cards is good for your finances as they allow you to spread payments for your purchases but do not overuse credit cards. Do not use them for paying everything. Utilization of credit cards unnecessarily can have a negative impact on your credit score. You can improve your credit score by keeping credit utilization ratio below 30%. If you have a limit of $1000, try to spend only $300 using that credit card in a month.
6. Apply for a Credit Card Only When Necessary
Use your existing credit card to make a purchase as every new application for a credit card generates an enquiry that can lower your credit score. Unless you are saving a good amount of money with a new credit card, there is no point in applying for it.
7. Negotiate with Credit Card Companies
If you cannot make a payment on time or default on the payment continuously, it can hurt your credit score. If you know this is going to happen, it is better to inform your credit card company and explain your situation and work out a solution that is affordable and within your means.