When You Should Get a Credit Card and 8 Ways to Build Credit
Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger who has started her own blog and also works as a contributor for the Oak View Law Group. You can find her writings on the following facebook page as well. Enjoy!
When should you get a credit card and how can you build credit?
A credit card is not just a tool that helps to make purchases, it can be much more. Optimized credit card usage will help you build a good credit history, which will allow you to get loans at favorable terms, cheaper insurance, lower rent, and a good cell phone plan. You can also make secure purchases and earn reward points on your everyday purchases. Simply, credit cards are useful if you use them in the proper way.
When should you get a credit card?
The “right age” to get a credit card is when you’re able to use your card responsibly; which means you’re financially able to pay off the bills in full every month. It is advisable to start building credit at the onset of adulthood, but not at the expense of accrued interest and debt.
To manage a credit card, you have to earn dollars so that you can pay off your credit card bills every month. In addition to this, you will have to earn enough to cover other financial obligations like paying utility bills, credit card bills, saving a certain amount, and other financial obligations.
Apart from these, there are some crucial steps that you have to follow to build good credit.
8 ways to build credit smoothly
Living with a poor credit score in our nation is tough. You’ll be subject to sky-high interest rates on loan applications and will be turned down by your lenders. If you haven’t already found out, you’ll soon know the importance of a good credit report.
As I have said earlier, most lenders will check your credit score as this is the most common form of analyzing the financial eligibility of a person.
Everyone, starting from the insurance companies, the loan lending institutions, the landlords and the employers, will check your credit score, as no one wishes to work with a person who isn’t good at managing his/her personal finances.
Pay your credit card bills on time and in full
If you want to build good credit with the help of credit cards, you shouldn’t miss your credit card payments. You should pay off the entire balance within the stipulated period.
Stay within the credit limit
When you apply for a credit card, the issuers decide a credit limit for you after assessing your income, current debt level, and credit history. You should make purchases staying within your credit limit. If you exceed the limit, you need to pay a penalty fee for going over the credit limit. In addition to this, exceeding the credit limit can affect your credit score negatively.
Your credit limit and the balance will be reported to the credit bureaus each month along with other account information. These factors play a significant role in determining your credit score and the “credit utilization” part of your score.
Determine how much you need to improve
When you’re thinking about repairing your credit, you should be aware of the kind of loan that you’re looking to take out. If you take out a mortgage loan, you need to have a credit score of about 690 to 700, or more. Check your present credit rating so that you can set an exact target, in order to obtain loans easier or with more favorable terms.
Get a copy of the report
You’re supposed to get a free copy of your credit report from the three credit reporting agencies every year. Get one from each of the bureaus so that you know how you’re being presented; and thereby you can take the needed steps to boost your score.
Review credit reports for errors
Once you have your credit report in front of you, your next job is to read it carefully. Each credit report may contain different information as each credit bureau may compute the score in a different way. You should be aware of all the three scores as you may not know from which credit bureau the lender will pull your report. You should go through the entire report so that you can detect any errors.
Send the dispute letter through registered or certified mail
You have the right to dispute against all the wrong information on your credit report. Often, disputing online is faster than disputing by sending mails. It is advisable you keep records of every financial transaction so that you can send the documents online along with a copy of your report to the credit bureaus with the errors highlighted.
Send the letters of complaints to each of the 3 major credit bureaus, namely, Equifax, Experian, and the TransUnion, alongside a copy of your credit report. However, you have to make sure that you send the letters through registered or certified mail with RRR (Return Receipt Request) so that the letters reach the desired destination. Creditors and the credit bureaus generally respond to your disputes within 30 to 45 days. You should get a letter from each credit bureau showing you what corrections were made, if any. Review what happened. If you are satisfied with your results, then the process gets completed.
If you are dissatisfied, then you can re-dispute. As a rule of thumb, you should wait at least two months before you dispute again. Another step that you can take is to consult an attorney to expedite the process. You can also directly call the bureaus with your queries.
Pay off your debts
Apart from removing the mistakes from the credit report, there is another way in which you can boost your score – pay off your old debts. By doing so, your credit report will be updated, which will help you raise your score.
Start with a secured credit card
If you haven’t yet applied for a credit card and your earnings are not high, then it is advisable to take out a secured credit card. With a secured credit card, you are entitled to make a cash deposit upfront. The deposit amount is the same as the credit limit.
You can use the credit card like other credit cards; you can make purchases, incur interest if you don’t pay your balance in full within the allotted time. The deposited cash will play the role of collateral if you fail to make your payments.
Why should you use a secured credit card?
The purpose of using a secured credit card is to build your credit. It is the best way a new user can build credit to qualify for an unsecured credit card. Once you get such a card, you can enjoy better benefits like increased credit limits without the need for any upfront deposits.
However, once you close your secured credit account, you will get back the deposit amount.
After building a modest credit score, apply for an unsecured credit card that comes with a low annual fee, to begin your credit journey.
“Did you find this post helpful? How often do you check your credit reports? And, how do you repay your credit card bills at every billing cycle? Share from your experience in the comments below!