Whether you’re more experienced with credit or looking to build your credit history, a credit card can be beneficial if used responsibly. Many credit cards have reward earning opportunities and more fraud protection than debit cards. If you have a limited credit history and are trying to choose a credit card, a secured credit card can be a practical option. But building credit with a credit card requires consistent healthy credit habits.
Here are some tips for using a credit card wisely:
If you use your credit cards a lot, you should be mindful of your credit utilization rate. It’s one of the biggest factors in your credit score calculations. Basically, credit utilization measures how much credit you’re using compared to your available credit limit.
Say you have a total credit limit of $10,000 from all your credit cards. If your current combined balances on all those cards is $2,000, then your credit utilization rate is 20% ($2,000 divided by $10,000).
The lower your utilization rate, the better it is for your credit scores. Ideally, your utilization should be as low as possible. This would mean you make purchases and pay more than the minimum payment due by the statement due date.
If you need to use credit cards to pay bills or meet other needs, your utilization rate could climb along with your balances. This may lower your credit score. However, when you pay down those balances, your credit score will bounce back.
Your payment history is another major factor in your credit scores. Using credit cards more and creating a higher balance can increase your monthly minimum payment. If you miss or can’t make the payment, it can damage your credit score.
Late payments can remain on your credit report for up to seven years, so consistently making on-time payments is crucial to a healthy credit history. You also may be charged late fees for missing payments, in turn paying more in fees and interest over time.
Everyone has bills to pay, and if options are limited, you may feel the need to use a credit card to tide you over. Our latest Consumer Pulse found that 17% of people who are unable to pay their bills or loans plan to use their available credit balance to help. Because on-time payments are so important to your credit, you should contact your lender immediately if you’re worried about being able to pay your upcoming credit card bill.
Some credit card issuers may offer to lower your interest rate or adjust your payment due date. If you have credit cards with high annual fees, it may be worth asking if those fees can be waived or if you can downgrade your card to a lower- or no-fee card. The options available to you will depend on your lender.
Paying down debt and making payments on time and in full will reflect positively in your credit report. To be sure your credit report reflects your good habits, it’s essential to check your reports regularly. Monitoring your credit reports consistently keeps you informed to any changes to your report that may impact your credit score. It also helps you stay on top of any potential fraud.
If you think anything on your TransUnion credit report is inaccurate, you can dispute it for free online. Managing your data identity and protecting your reports fraud will help you stay in control of your credit story.
If you’d like to learn more about your credit report and how each section may potentially impact your credit score, read our interactive credit report guide.