Whether you’re building credit from scratch or trying to rebuild a past history, using credit in the right way really matters. A good credit score can impact many areas of your life and using your credit responsibly is essential to achieving this. Credit cards and lenders don’t often provide the tips you need to effectively manage your credit and not get into unnecessary debt. Here we’re looking at how to responsibly and sensibly use your credit from day one.
Start Well with your First Credit Card
If you’ve just got your first credit card then take it slowly. Maxing out your balance on the first day is never recommended and can get you into a huge amount of trouble with repayments straight away. In fact, credit cards should never be maxed out and the best way to use them is to make small changes as you need to and pay off the full balance every month. Doing this helps create a good credit history. You could use it for your monthly streaming subscriptions for example or a recurring bill you can always easily pay off on payday.
Use for Bigger Buys When Ready
Once you’ve got into the good habit of regularly paying off your credit card in full, you are probably ready to consider using your credit for slightly bigger purchases. Experts recommend never using more than 30% of your whole credit limit and make sure you have cash put aside to pay it off in full when it is time to pay off your card. After a few months of using your credit card efficiently you may see your credit limit increase and therefore, your spending power, as you can stick to the 30% rule but at a higher limit. Remember, if you begin to use your card in a less sensible and reckless manner you may find your limit is cut back down. If your balance is high, it will impact negatively on your credit score as the credit referencing agencies like to see low utilisation of credit.
The temptation to use your credit card for unnecessary purchases is always high but you have to become an expert in self-discipline to be a sensible credit card user. You have to learn to regularly tell yourself no if a charge will take you over the maximum you can afford to pay at the end of the month. You must also make sure you have the funds available to pay off the credit card in full each month. If you spend a chunk of your credit card payment fund, you will need to replace it. If this much self-control is a step too hard, then consider sending your payment as soon as the transaction shows on your account.
It’s also recommended to stick to one credit card so you can manage your payments. Several cards with different payment dates can be hard to manage, especially if you’re new to credit or don’t have a great track record in the past with remembering payments on time.
Plan for Harder Months
Everyone has a month or so where they may not be able to pay the full amount. Do not let these months get on top of you. Make sure you make the minimum payment at the very least during these times and don’t make any more credit card charges which may increase your balance. If you know you don’t have the money to pay off your balance then take it out of your wallet and keep it out of reach, this minimises the risk of you opting to use it on a whim when out and increasing an already unaffordable charge.
Take your Time and Reap Rewards
Building good credit takes hard work but it’s worth it. It can stand you in good stead for certain career moves and can be the deal breaker when looking for a mortgage or an important loan later in life. Make small steps now to ensure a healthy credit score in the future.