If you filed bankruptcy then a bankruptcy credit card probably feels important to you. Credit cards are great for buying things online with protection, for getting a variety of perks and rewards, and sometimes for allowing us to buy a thing that we need even when we don’t quite have the money yet. But they can also help you to improve your credit, if you use them right.
Following are four ways that credit cards help you to improve your credit:
Part of your credit score looks at how long you have had your credit accounts open. They also look at the variety of accounts that you have. Having two or three credit cards open, all with low balances and in good standing, can do wonders for your credit score. This is one reason that secured cards are so important if you are trying to rebuild your credit. Because one of the best ways to build your credit is to responsibly manage a credit card, so if you are working to rebuild and have no credit cards right now consider a secured card today. If you need a bankruptcy credit card it is likely that a secured card is all you will be able to get, unless you choose one of those bankruptcy credit cards with the crazy high annual fees, month fees and more. Bad credit unsecured credit cards will cost you as much or more than unsecured cards. One note, never pay more than $79 a year for your card – even with bad credit. Opt for a secured card which you can usually get for a $50 deposit and $29 annual fee.
A credit card doesn’t really build your credit if it sits there doing nothing. Your credit report will show your average balance and payments made. If it just says “zero” everywhere you are not showing responsibility in making your payments, even if you are demonstrating restraint. We are not suggesting you charge a bunch of stuff you don’t need just to build credit. Instead, we are suggesting that you choose a credit card that has perks you like and benefits you will use, then use that card wisely.
Showing consistent payments, over a long period of time, is incredibly important to building good credit. Again, you can’t just use your card once, pay it off, and then leave it be. First, you aren’t building much credit this way. Second, your credit card bank may close your account for inactivity if it has no balance and you are not using it.
Most banks will close an inactive account if it goes anywhere from 6 to 18 months without use. If you aren’t really a credit card person then find a way that your credit card can work for you. Maybe use it just to buy all your gas every month, then pay it in full. Or use it to pay your car insurance, then pay in full. This way you get the benefits of regular payments and never pay a penny in interest.
So, we just spent paragraphs telling you how important it is to use your credit. Now, you are excited – you think we just told you to go out and buy a giant screen television and a new wardrobe. Sorry, that’s not what we meant. While using your cards is important you also need to know how credit card balance affects credit score– the main thing to know is to keep a low balance on your cards. A huge factor of your credit score is the ratio between how much open (available) credit you have and your balance. In general, you want to use less than 35% of your available credit at any time. Even less is better.
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