LEARN HOW TO USE CREDIT CARDS RESPONSIBLY
USING A CREDIT CARD IS A PRIVILEGE
AND NOT A RIGHT.
CREDIT CARDS ARE A SERIOUS FINANCIAL
TOOLS AND THERE IS NO REASON A BANK IS
OBLIGATED TO APPROVE YOU FOR A CREDIT CARD.
1. Learn your FICO Score--- When you apply for a
or a loan, your Fico Score determines what
you’ll pay. (FICO is short for “Fair Isaac Corporation.”)
This score is calculated by assessing several
aspects of your
payment history and credit account balances.
2. Don’t close all of your accounts---Closing your
credit card accounts isn’t always the smartest
move for your credit.
Remember, you are rewarded for credit
to you that you are not using. A good
way is to learn
how to keep credit accounts open
3. Use your credit cards periodically for small purchases--- Some credit card companies close accounts
that have been inactive for a certain period
of time. Set a low dollar limit and use your
active cards from time to time.
4. Use reward cards---offer rebates on purchases,
which can help you save on those periodic
expenses you’re charging.
5. Don’t carry a balance--- Pay off your cards
in full each month. Or you can pay more than
the minimum you owe.
6. Request a higher credit limit--- If you’ve been
making timely payments, you may have to ask
your credit card issuer to receive an automatic
increase, which can help improve your
7. Only spend what you can afford--Don't spend
more on a credit card than you can afford to pay
in full when the bill is due.
8. Always pay all your bills on time---Late payments
or accounts that go to collections are a bad sign to Lenders.
9. Keep debt low relative to your credit limits---Maxing out credit cards is a bad sign. Paying down loans
or paying them off is generally seen as a good thing.
10. Don't apply for lots of new credit in a short amount of time---Lenders may think you are a greater risk if you apply for 6 or more cards a year
If you do not use a credit card properly it can leave you with a surprising amount of large debt which can cause you a very long-lasting damage to your financial health
If you use them responsibly, it can help you build great credit and save you money
To understand how to use credit cards responsibly, you will first have to understand how credit history works
The higher your score the more trustworthy you seem to banks, lenders,landlords and employers.
WHAT IS THE CREDIT SCORE RANGE CREDIT BUREAUS USE?
EXCELLENT 750 & ABOVE
BAD 550 & BELOW
Understand How Credit History Works
Based on your credit history, a Lender may decide whether they want to do business with you and on what terms
Your credit history can affect your ability to
get approved for a credit card
get approved for a mortgage or auto loan
get a cell phone
find a job get insurance coverage
find employment rent a home or apartment
connect utilities in your home
The sooner you start building credit the better.
Lenders send information about your financial behaviour to credit bureaus. The credit bureaus store this information and use it to create your credit reports.
Consumers with excellent credit score will likely have no or very few late payments in their credit report, will regularly pay off their balances in full, and will have a low credit utilization across all their lines of credit.
Consumers with a good credit score in this range still enjoy some of the best financial products and interest rates available. This credit score means you are generally financially responsible: Canadians who sit in this credit score range make most of their payments on time with only the occasional late payment on rare occasions.
Consumers with fair credit score will certainly experience higher interest rates from lenders. Those on the mid to lower end probably have been late on their payments multiple times to more than one lender and may have defaulted on a loan at some point.
Consumers with below average credit will face higher interest rates for the lines of credit they are approved for, which is costly over time.They also are not eligible for the more lucrative credit cards that provide accelerated levels of cash back and rewards
Consumers with poor credit score unfortunately have a significantly damaged credit history. Perhaps you have defaulted on multiple loans, your debt is very close to your credit limit, or you have declared bankruptcy, which will be on your credit report for at least seven years. In this range you will have a difficult time obtaining credit or getting approved for a loan.
Borrowing and repaying your credit card bill on time, in addition to not carrying a large balance is one of the most important things you can do to build up a great credit score.
The card companies report your payment behaviour to the credit bureaus.
Keeping an overall low credit utilization is key to keeping a high credit score.
However having at least one account with a high balance can hurt your score even if your overall utilization is low.
Make sure your score wont suffer by spreading out a low utilization across all your accounts.
Understand How Credit Cards Work
A credit card is like an instant loan. When you make a purchase with a card, the credit card company will pay for the purchase on your behalf. Likewise they expect that you will pay them back for the loan in the future.
The maximum your credit card issuer will let you borrow at one time is determined by the credit limit on your account
If payment of credit card is not done soon enough , interest gets charged on the amount owed.
Interest is a fee you pay for borrowing money
Making payments on time is the most important aspect of a credit score.
Your credit history should show no recent late payments if you want to push your score into the excellent range
Negative information can stay on your credit report for seven years, though the older the information, the less of an impact.
The amount of credit you are using.is the next greatest factor in your credit score and should be under 30 percent of your available credit limit. The lower the better
Lenders look at the total amount that you owe on each of your accounts compared to your credit limit, and the total that you owe overall compared to your overall credit limit.
LENGTH OF CREDIT HISTORY--15%
To achieve an excellent score, you need to be especially careful about shutting down long-standing accounts, and you shouldn’t open too many new accounts at once, since this can drag down the average age of your accounts.
TYPES OF CREDIT--10%
Different types of accounts under your name known as "credit mix" includes revolving credit, such as credit cards, and installment loans such as mortgages.
To get your score into the excellent range, you should make sure you have multiple types of credit in your credit history.
RECENT CREDIT INQUIRIES--10%
Be careful about applying for new credit cards. Make sure you can qualify before you apply and try not to apply for a lot of cards all at once, as this can cause your score to drop.
This is often referred to as HARD INQUIRIES
Getting a credit card ---A good credit score gives you access to premium cards with generous rewards and exclusive perks. And the higher your score gets, the more competitive your credit card options become.
Qualifying for a loan---A good credit score helps you qualify for the lowest interest rates on personal loans and car loans—
Renting a home---A good credit score improves the chances of your rental application being accepted.
Buying a home-A good credit score can help you get a lower mortgage rate from a major bank or other lender. The best rates are usually reserved for consumers with good credit scores, but you can also negotiate a cheaper mortgage. Remember: a high score shows that you’re a low-risk borrower.
While a Credit Card offers you the ability to borrow with flexibility, certain restrictions apply to your account which is known as your credit limit.
A credit limit is the maximum amount of money which a lender or credit card issuer will allow you to borrow on your account
This is how the process works
Credit Limit on the card---$10000
Total Monthly Charges---$10000
Updated Available Credit---$0
Credit Card Payment---$5000
Updated available credit for new charges---$5000
So in this example you have a credit line of $10000 and you use the whole thing up by making purchases. Then you make a payment for half the balance, which leaves you with half of your total credit limit available for new purchases
TIP OF THE DAY
Paying your full credit card balance off each month doesn't just free up your credit line.
its also a smart move for you to get a very high credit score which can also help you to save a lot of money on expensive interest rates
Do you Have a credit-related question that we didn’t answer in this guide?
Send us an Email and we will do our best to answer any inquiry you might have about credit scores, reports, ratings, and more.
HOW DID I BUILD MY CREDIT SCORE FROM 500 TO 850
WHAT FACTORS INFLUENCE CREDIT CARD THE MOST?
HOW DO YOU INCREASE YOUR CREDIT SCORE ?
I built my credit score from 500 to 850.
It took me one year to work on it.
I followed the same procedure every month.
VantageScore scoring criteria
Payment History (Extremely Influential)
Credit Utilization (highly influential)
Length of Credit History and Type of Credit (HIGHLY INFLUENTIAL)
Total debt owed (moderately influential)
Recent credit inquiries (less influential)
Available credit (less influential)
WHAT DETERMINES AN EXCELLENT CREDIT SCORE?
The FIVE FICO scoring criteria
Payment history (35%)
Credit utilization and total debt owed (30%)
Length of credit history (15%)
Type of credit (10%)
New credit accounts and recent credit inquiries (10%)
TYPES OF ACCOUNTS WHICH HAVE CREDIT LIMITS
Retail credit cards(Gas Cards and Department Store Cards)
Home Equity Lines of Credit(HELOC)
Business lines of credit
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