How To Build Credit Using Credit Cards

In debt? Closing an extra credit card might sound like a savvy financial solution, but for your credit score, that may not be true.

Even if you are not in debt, think twice before taking scissors to the plastic.

Credit cards are one of the most misunderstood forms of building a healthy credit history. Often assumed to be – and used as – a source of emergency income, credit card misuse is a common occurrence.

However, digging into what credit is, how it works and where credit cards come to play within the larger picture can help those little pieces of plastic work for you, instead of undoing your financial stability.

Understanding The Function Of Credit

Credit cards are much more than a way to purchase something when your pocketbooks are looking thin. In fact, when the bank account shows a low balance, turning to credit cards could be a red flag of poor financial habits and money mismanagement.

When used responsibly, however, credit cards are one of the easiest and most effective ways to build credit.

Particularly in this day and age, having a robust credit history is a must. While some can do without, and some preach the credit card free life, extensive, healthy credit can expand the limits of your purchases and even employment options.

Having credit is all but essential for making large purchases such as cars and homes. Furthermore, credit is also necessary for long-term contracts like renting or employment. Regarding employment, while it is advised against for employers to deny someone a position based solely on credit, it is not illegal.

Even if the purchaser was able to pay for these expenses without having a line of credit, if a cash or check purchase is not a current option, the purchase could be denied. Despite proof that income and cash flow exceed the cost of the purchase, a lack of credit history can be grounds to not sell or extend employment.

Why? Because credit scores indicate to the seller or employer that the purchaser has a history of being financially responsible.

How Credit Cards Build, Or Burn, Credit

Holding a credit card is not a free pass to free money. It’s opening a line of credit.

When understood for what it is and maintaining the attitude that the card is your ticket to building a record of responsibility, mishandling can be easily avoidable.

The simplest way to keep credit card use in check is to never spend more on the card than you could in cash, followed closely by the next important step of paying off the balance quickly.

When credit card use is seen as an alternative to cash you already have — just a different form of payment — crippling, debt-forming habits can be sidestepped.

That being said, debt happens. Mismanagement happens. Emergencies arise where payments using a credit card are the only way to stay afloat. Don’t go rushing to cancel all cards if this happens. Don’t forget that the poison can be the remedy with proper guidance. The same thing that got you into trouble, when used correctly, can redeem your credit.

Ways To Boost Your Score

1. Use the card(s) frequently
2. Don’t exceed 30 percent of your maximum credit amount
3. Make payments regularly
4. Make full payments
5. Consider the advantage of multiple credit cards

Frequent Use

Creditors, lenders and people extending contracts all look at credit reports to get a clearer picture of who you are. They are all searching for specific indicators of responsible money management.

By demonstrating financial responsibility, you convey a well-rounded persona — marking yourself as someone who can be trusted with significant responsibilities over a long period of time.  

One key indicator of your credit report is how frequently you use your line(s) of credit. Simply holding an account does not demonstrate to creditors your spending habits; use of the card(s) is essential. Extremely sporadic use does little good to keep those reports in ideal shape.

Frequent use, coupled with regular payments, shows that you know how credit functions and are not using it to purchase things outside of your budget.

Infrequent use, even if the balance is paid in full after a brief time, does not show the same level of responsibility. A single instance or two does not indicate a reliable habit — the habit is what people are looking for when they access your credit report.

The 30 Percent Guideline

Similarly to frequent use, the amount of credit used sends a clear message over time about spending habits.

In order to boost your credit most significantly, financial advisors suggest implementing a 30 percent rule, where the credit holder does not use more than 30 percent of their available credit.

Again, over months, this habit begins to form a pattern that in turn forms a picture of “typical use.” The longer your typical use remains constant and demonstrates responsible credit, the better your credit report will look to others.

Staying below your credit limit — significantly below — reinforces that the card is a vehicle of financing and not a way to squeeze in a few more purchases that are unaffordable within your budget.

Regular, Full Payments

Think of making payments as a way to check in with your credit company.

Not only do credit cards come with set due dates that are highly encouraged — and often reinforced with late fees, but on-time payments display awareness on your part of deadlines, basic contractual agreements and following through on promises.

Yet again, by repetitively doing the same thing over a length of time, you create a paper trail of habits that lenders, creditors and contractors love to see.

Furthermore, even a single late payment can put a dent into your credit score. In order to avoid this damage, make a habit of paying at least the minimum amount every month.

In order to have the best score you can, do not carry a balance from month to month to month, only ever paying the minimum required. Pay off the balance as quickly as possible. This strategy should not be difficult if you do not use your credit card to finance things you cannot really afford.

One Card, Two Cards, Many Or Few Cards

Having more than one line of credit can be beneficial — if used correctly. However, multiplying your cards multiplies the responsibility.

Holding multiple cards and paying on them regularly demonstrates the ability to manage multiple lines of credit without drowning in one debt by compensating through another. Having more than one card and handling each of them equally well can further bolster your image as a responsible adult. Above all, when someone accesses your credit report, they are looking to see if you can demonstrate responsibility.  

Demonstrate that you have the capability of managing debt without being controlled by it.

Again, by properly handling multiple lines of credit at once, frequently keeping minimal balances and paying off monthly, more than one card can be advantageous to your credit score, and thus your relationship with creditors, lenders and contractors.

The Bottom Line

Credit cards are tools that build your reputation as a financially responsible adult. With the right intentions and proper use, they can build and rebuild security. Used otherwise, they can spell financial trouble.

Holding multiple lines of credit can be beneficial if you act proactively and ensure to pay off the balances on a monthly basis and do not max out the credit limit; staying at or below 30 percent has been shown to send the clearest message to lenders that you are financially responsible and accountable for your spending habits.

However, multiple lines of credit may carry too high of a risk if they are used as “free cash” to finance items your bank account cannot handle, which can lead to large debt problems and a murky credit history. To avoid falling into the frequent trap of using plastic in a pinch, change your mindset to view credit cards as an extension of check and debit cards, and only spend what your bank account can handle.

With proper control, holding credit can be an unparalleled financial benefit.
As with any contract or financial decision, think before you sign. Understand what you are getting yourself into by opening additional lines of credit or holding lines of credit that are not helping to build your security. Don’t be caught unprepared. Take control of your financial health today.

Why You Shouldn't Neglect Your Credit Score

With all the things you have to be concerned about in life, you’d think by the time you hit your 50s or 60s, you could stop worrying about having a good credit score.

You may have bought and sold homes, paid off credit cards, successfully negotiated lease agreements, and paid off brand new cars in your day. You are a good credit risk — heck, I’d loan money to you. So why should you care about your credit score at this stage of the game?

You might not even have plans to move and apply for a new mortgage. You might intend to drive your car for 250,000 miles, or until your wheels make their last turn.

But sometimes life has other plans for us.

Benjamin Franklin once said, “The only two certainties in life are death and taxes.” I would add “change when you least expect it” to his list.

A change may involve taking out a loan or some other kind of credit check, so you need to be vigilant about keeping a very good or excellent score. According to BANCO FINANCIAL a “good” score is generally 720 or higher.

Here are some times a great credit history and score could come in handy as you approach your golden years:

WAYS TO BOOST YOUR CREDIT!!!

Pay attention to when balances are paid off

Many people assume that when they pay off their balance on a credit card, that fact shows up right away in their credit score. But most credit card companies report customer balances to the three major credit bureaus at the beginning of each month, and it can take 30 to 60 days for your credit score to reflect that. Use this knowledge before deciding when to apply for a mortgage or personal loan. A higher credit score can help you win better terms on a loan.

Look into credit repair, but carefully

Using the right credit repair expert can help you see improvements in your credit score. There are complex laws involving creditors, credit bureaus, collections companies, judgments, tax debt and more. A seasoned expert can help you navigate this confusing maze, and you may be able to see a boost in your credit score of 10 to 200 points in just months.

The key is to choose a reputable company, and to make sure they review your credit before taking you on. Without a full credit analysis, there is really no way of knowing whether a credit profile can be improved. To allow a prospective client to sign up for credit repair services without a thorough credit analysis would be unethical.

Ways to boost your credit score

Focus on your score — not your income

As a credit expert, I encounter hundreds of high-net-worth individuals who assume they have a great credit score because of their wealth. But your income has nothing to do with your credit score. If you have $7 million in the bank but are late on your credit card payments, your credit score will still be poor. Missing a payment will affect anyone’s credit score. So make all payments on time, no matter what.

Keep a good balance-to-credit-limit ratio

When you want your credit scores to be as high as possible — for example, when you are applying for a mortgage — keep your outstanding balance on each card below 10% of the credit limit for a few months prior. So, if your credit card has a charge limit of $1,500, keep your outstanding balance below $150. It’s also helpful to have a limited number of credit cards with outstanding balances. Do not close credit cards; just pay off the balances.

Become an authorized user

If done correctly, being added as an authorized user on someone else’s older credit card account can boost your credit score. Since the average age of credit accounts has an impact on scores, being placed on an old card can age your credit and add points. But you have to be careful. The individual should have a strong payment history and low credit card balances.

In addition, some card issuers reward cardholders with extra cash, points or miles for adding an authorized user.

SEVEN WAYS TO RAISE YOUR CREDIT SCORE

SevenWays to Raise Your Credit Score

1. Pay Bills before Payment Date
2. Make Multiple Payments
3. Ask for a "Good-Will Deletion"
4. Pay for Removal
5. Protect Yourself in a Short Sale
6. Purchase Seasoned Tradelines
7. Call BANCO Capital Corporation 1-800-442-1591
Check us out on the website @ http://www.bancoservices.com

THERE IS NO FAST CREDIT REPAIR

If a low credit score is standing in the way of you achieving your goals and dreams, it is time to start down the path towards credit restoration. The reality is credit restoration is a process and takes time just as accruing poor credit took time. Banco Capital uses multiple strategies to improve your credit rating. Call us today at 1-800-442-1591

WHEN NOT TO SHOP YOUR CREDIT

If you are applying for a mortgage it is natural to apply several places in order to get the best rate.In this instance it does not hurt your credit so long as the checks are all done in a 45 days or less period.However applying for revolving credit or credit cards,the same theory does not apply because you may be approved for multiple cards which you cannot support.