Tips for using credit cards to build credit history

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Tips for using credit cards to build credit history

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Credit cards could be used as helpful instruments to build excellent credit history over a period of time. This credit history will help you save thousands of dollars in the future in the form of interests paid on personal and home loans and insurance premium and also through credit card rewards. Here are some tips that could help you use credit cards the right way to improve your credit score.

Swipe your credit card for all necessary expenses

Your credit history will be better off, if you swipe and repay $500 in 3 months compared to swiping and repaying only $100. The more you spend on your credit card and repay successfully on time, the better it will be for your credit score. However, it is extremely important to remember that you should swipe your credit card for expenses only if you are absolutely sure of your ability to repay the debt. On the other hand if you swipe your card and are unable to pay back the debt, your credit history will suffer.

Low outstanding balance to credit ratio

The credit score depends on the ratio of credit used to credit available. If your outstanding balance is high and almost touching your credit limit, then your credit history will suffer. So your primary aim has to be to make consistent payments on time. This will keep your outstanding debt low and also help in increasing your credit limit after a while, owing to your creditworthiness.

Don’t incur penalties

Making one late payment could lead to higher interest rates for 6 months, assuming you don’t make any more late payments in that period. Similarly, crossing the credit limit would incur over-the-limit fees. Withdrawing cash from ATM using your credit card could lead to cash advance fees. It is important to avoid all these additional charges. Late fees and over the limit fee are seen negatively on the credit file and could lower your credit score. All these additional charges could add to your outstanding debt as well, making repayment tougher. Hence using credit card sensibly involves to what extent you can spend and repay on the credit card.

Set up auto payments with your credit card

Pay your credit card bill on time. But use your credit card to pay your other bills on time too. In fact, set up auto payment with your credit card for phone, internet and other utility bills so that you don’t miss their payments.

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