While it is easy to acquire credit cards by providing the right documentation, ensuring that it does not suck you into a vortex of debt can be a daunting task. It is not easy to make credit cards work to your advantage to improve your credit score, even if you use First Savings CC issued by First Savings Bank with a MasterCard license.
While credit cards give access to instant revolving credit, the nature of cards does not help to improve your credit score. Credit cards enhance your buying power, and only by using it intelligently, you can improve your credit score by avoiding the trap of the vicious credit cycle.
The importance of credit score
Since your credit card score indicates your financial health, it helps to establish your credibility and reliability to the lenders. How much responsible you are in using your credit card becomes clear from your credit score.
With a higher is your credit score, it will be easier for you to obtain loan approvals or new lines of credit. When lenders find you a reliable borrower, you can expect a lower interest in loans and better terms.
Improving your credit score entails closely monitoring your spending habits and balancing it with your ability to make timely payments every month without carrying forward any balance. Here are some other measures to take.
Regular review of credit reports
When you can ascertain what works in your favor, it becomes easy to plan to improve your credit score. It begins by reviewing your credit reports regularly. You can pull out a copy of the report from any major credit rating bureaus like Experian, Equifax, and TransUnion as you are eligible for a free report once a year.
Review each report to identify the pain points like delayed payments, high balances on your credit card, and too many inquiries for new credit. Work to improve these points and maintain a mix of different loan and credit card accounts whileincluding older credit accounts.
Focus on bill payments
Almost 90% of lenders that use FICO credit scores use 5 sensitive factors to judge a borrower. These include payment history that contributes 35%, followed by credit usage (30%).
Next comes the age of credit accounts that contribute 15%, credit mix that contributes 10%, and new credit inquiries (10%). You can easily prioritize your attention to the respective areas by looking at the weight applied to each factor and develop strategies to improve the credit score.
Aim for no more than 30% credit utilization
Making thrifty use of the credit limit line points towards responsible use of the credit card, and it is only second to credit history in importance. Keep your credit utilization under check by paying in full your monthly credit balances. But if it is not always possible to maintain the discipline, ensure that you do not exceed the limit of utilizing more than 30% of your credit limit.
Lastly, minimize your inquiries, especially hard inquiries like new loan applications or seeking fresh credits in any other form like mortgage, auto loan, etc.