How a Credit Card Can Help You Build Credit

April 7th, 2017 | Author:

[A]fter the recession of 2008, more people have become conscious of debt. Some of them have decided to give up using credit cards or other forms of credit in favor of a cash-only approach. While this is a good idea for people with bad spending habits or those who have a tendency to live beyond their means, it can be a mistake for others.

Credit cards can help you build or rebuild credit, giving you more access to things like new cars and a home in the future. Here are some ways a credit card can help you build credit and some truths about having one.

A Credit Card Allows You to Establish a Credit History

A credit card helps you build a credit history if you have none. Just open an account and use your card responsibly, and you will start to see an improvement in your credit score in about six months. It’s a common misconception that you must carry a balance for it to work. You do need to use the card, but you can turn around and pay off the balance before you’re charged interest. As long as you use it on a regular basis, the card will stay active and be reported to your credit report.

A Credit Card Gives You a Mix of Credit

One thing that affects your credit score is the type of credit you have. If all you have is a car loan or personal loan, you need to get a credit card to have revolving credit. This type of credit weighs heavily on your credit score, and it can help you improve your credit rating.

A Credit Card Can Improve Your Credit Utilization Rate

Another factor in determining your credit score is how much credit you use. If you have a credit card and keep the balance low, ideally at 30 percent or below, it will boost your credit score. It shows that while you have credit, you don’t use it too much.

A credit card can help you build or improve your credit score. Just make sure you know how to use it responsibly to enjoy the full benefits.

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