The most important thing in picking up the credit card is to learn about it’s interest rate.
A credit card’s interest rate may be a key factor if you regularly carry a balance. A balance is the amount of money you owe on your credit card. The higher the interest rate, the more interest you’ll pay on an outstanding balance. A lower interest rate card may save you money over time. However, the interest rate is not important if you a) pay your balance every month b) don’t take out cash advances or make cash-like transactions
There are various interest rates available. Some low rate cards charge an annual fee.
For example, you use a card which has an interest rate of 21% with no annual fee. You want to pay off your balance equal to $4000 in one year and are considering switching to a low interest card with interest rate equal to 9% and $50 annual fee, you will have $4472 and $4249 respectively. You will pay $273 less with a lower interest rate card.
How to use a credit card to improve your credit score?
A credit score is the measure of your financial health. It shows how responsibly you use your credit. The higher the credit score, the easier for you to be approved for loans and credits. It also can help you to get lower available interests when you borrow money. Here are some factors that contribute to a higher credit score include a history of on-time payments, low balances on your credit cards, a mix of different credit card and loan accounts, older credit accounts, and minimal inquiries for new credit. Late or missed payments, high credit card balances, collections, and judgments are major credit score detractors.
Most of the top lenders use specific ways to check your creditworthiness and they are determined by five factors:
- Payment history (35%)
- Credit usage (30%)
- Age of credit accounts (15%)
- Credit mix (10%)
- New credit inquiries (10%)
Payment history has the biggest impact on your credit score. That is why it’s better to have paid-off debts, such as your old student loans, remain on your record. If you paid your debts responsibly and on time, it works in your favor. Thus, the simplest way to improve your credit score is to avoid late payments.
How to avoid unmanageable debts?
Review Your Credit Reports
To improve your credit, it helps to know what might be working in your favor (or against you). That’s where checking your credit history comes in.
Get a Handle on Bill Payments
Avoid late payments at all costs or charge all (or as many as possible) of your monthly bill payments to a credit card. This strategy assumes that you’ll pay the balance in full each month to avoid interest charges.
Aim for 30% Credit Utilization or Less
A good rule of thumb is to keep your total outstanding balance at 30% or less of your total credit limit. From there you can work on whittling that down to 10% or less, which is considered ideal for improving your credit score.
Limit Your Requests for New Credit—and ‘Hard’ Inquiries
Hard inquiries can include applications for a new credit card, a mortgage, an auto loan, or some other form of new credit. The occasional hard inquiry is unlikely to have much of an effect.
Keep Old Accounts Open and Deal With Delinquencies
The age of credit portion of your credit score looks at how long you’ve had your credit accounts. The older your average credit age, the more favorably you appear to lenders.And if you have delinquent accounts, charge-offs, or collection accounts, take action to resolve them.
Use Credit Monitoring to Track Your Progress
It is an easy way to check how your credit score changes over time. They also can also help you prevent identity theft and fraud.
Improving the credit score is a key step to change your life for the better. It can help you to make a valuable purchase such as a car or a house. It can take some time, but it can have a noticeable impact on your credit score and make your life easier.
