Good Credit Habits

When you’re working to build or rebuild your credit history, how you use credit is everything. It’s important that you build the right credit habits to build and maintain a good credit score.

Unfortunately, credit cards companies do not include instruction on how you should use them most effectively. Below are ways to improve your habits and in turn improve your credit ratings.

Before You Apply

Try to get a card that does not have an annual fee, if you have low or no credit this may be difficult to get. Next, do not get a card that has purks, these only add to the interest rates you are paying.  If you are not eligible for a credit card due to your credit rating you should look at a secured credit card. It will cost money up front but will help improve your credit so later you can get a typical credit card.

First Card

When you get a new credit card start slowly. Make small charges that only use up to 10% of your credit limit. This will make it easier to pay off your balance each month. This will help develop a good credit record without abusing your credit card

You can use your card to pay a monthly bill and then pay off the credit card each month. By paying off your credit card and only using a small portion of your available credit you achive two very healthy habits.

Step Two

Now that you have a habit of paying your bill in full, you can start using your card to make purchases. Keep your purchase below 25% of your credit limit. Many people have found that using a check registry to show the money coming out of your account when you use their card. This way the money is set aside so that the credit card balance can be paid off.  

Continue with Good Habits

• Remember to only use your credit card for purchases that you can pay off when the bill comes. Only in an emergency should you not follow this rule. What is an emergency? Your hot water tank goes out, your tire blew out and you do not have a full size spare. 

• Pay your bill when you get it. While this will not show up on your credit score as someone who pays their bills early; your credit card company will see this and be more willing to lower your interest rate and/or increase your credit limit.

• If your account has the ability to notify you when you are close to your limit, set it low so that you can get an alert if you are close to 25%.

• Most credit cards allow you to view your account activity online. If your credit card gives you this ability, sign up so you can monitor your credit card balance and pay your bill online.

• If you are able to keep your credit utilization below 25% look to get a second card and start all over again. Now you need to keep your overall utilization below 20%.

• You will start to get many offers in the mail now that you have shown that you can manage your credit. It gets very tempting but many will have hidden fees and limited time rates. Shop for a card yourself; your regional or credit union as they will have the best rates and no fees.

• Many people will resort to using their credit cards if they are low on cash, this is the time to NOT use your card. If you do, it will create a bad habit that will spiral out of control.