It may seem weird, but when you want to improve credit ratings, credit cards can be your best friends. If you have trouble managing your finances then many people will tell you to cut up the plastic, but that is not good advice. Why?
Well, one of the ways that your credit score is assessed is by seeing how you manage your credit cards. If you use them responsibly, making payments on time and not going over the limits, this makes you look like a good credit risk. That’s why credit cards are important in the battle to improve credit scores.
Of course, if you have a huge number of cards that are all maxed out and you regularly forget to make the payments or keep asking for payment vacations, it is going to have the opposite effect. So you do have to think about how you use the cards.
Fortunately, it’s quite simple to figure out a strategy for credit card use to improve credit ratings. First is the question of how many cards you should have. What is the ideal number from the point of view of your credit score?
The answer is that it’s best to run two or three cards. You might have four, but certainly no more than that. You can most quickly build up a good credit history if you have two or three cards. So if you have more than four cards right now, consider transferring the balances from the ones with the highest interest rates and closing those accounts.
Of course, you will need to have a good payment history on the cards that you keep in order to improve credit for the future. If there is one card where you have skipped a lot of payments in the past, that might be an account that you could pay off and close right now. However, it is usually best to keep the cards that you have had the longest. A long relationship with a credit card company will count in your favor.
But the really important thing is how you behave from now on. What is the best way to show the credit card companies that you are a good credit risk?
There are three points to the answer. The first is to make your payments on time, always. Make a calendar note so you know when the payments are due each month. That way you will not miss one even if they don’t send you a statement or if you are on vacation.
The second way to improve credit with credit cards is to pay a little more than the minimum required payment each month. It does not have to be much, just $10 or $20 dollars extra each month will help to pay off that debt and look good on your credit history.
The third thing that you can do is to make sure that you keep the balances low in relation to the maximum. This may be difficult at first, especially if you just transferred balances from other cards. The important point is to make sure that you are always paying off more than you spend on the card each month.
What this means in practice? Well, it means that you don’t have to stop using the cards, but each month you pay off everything that you spent on the card that month, plus more. You just need to make sure that you are paying off more than you spend on the card each month, and the balance will slowly go down and improve credit for you.