A credit card can be essential to establishing a robust credit history, and thereby building a high credit score. People who lack long, diverse credit history, yet are consciously trying to improve their credit score and ensure future access to credit, should understand the benefits a credit card brings to the table.
There are many benefits to having credit cards as one of the financial tools in your arsenal. As previously alluded to, credit cards diversify your financial resources and any time you are able to do that there is a two-pronged benefit: you have additional resources available to you and you are able to prove that you are responsible and reliable by way of your credit score. Your positive payment history and account management for the credit card are recorded in your credit report, providing the building blocks for your credit score.
When selecting a card, stick to well-known and reputable companies. An unknown company could be fraudulent and expose you to identity theft. Do your research if you choose to go with a lesser known company.
Unless you are looking for a credit card that offers specific perks or rewards, such as travel miles, look for offers with a zero percent introductory rate. Compare your options, some companies will offer a 6 month introductory period, while others will offer 12 months. Check the interest rate you are being offered when the introductory period ends, and try to get the lowest offer.
Depending on your length of credit history and your current credit score, you will be offered a certain credit limit on the card. A high credit limit can be beneficial to you, but you have to earn it. See what credit limit you are being offered, it may vary between companies. Never utilize your entire credit limit. It will dramatically reduce your credit score. Instead keep a self-imposed credit limit, never spending more than more than 30 percent of what's available to you. This optimizes your credit score and indicates to lenders that despite having credit extended to you, you were in control of your spending.
Finally, when it comes to actually paying your bills – do it on time and try to pay off your balance each month. Carrying a balance from month to month can get you in trouble, as you will accumulate interest and your debt will increase. It will also impact your 'utilization ratio' affecting the amount you can charge each month without breaking the '30 percent rule'. In the same way that credit cards can be beneficial to positive credit history, abuse of plastic can significantly damage a credit score. If you currently carry more debt on your credit card than the recommended 30 percent, work to pay off the debt.
After several months of limiting your spending and responsibly paying your bills, it is a good idea to call your bank. You may want to negotiate a higher credit limit or lower interest rate. Cite your excellent payment history to help with your negotiation. Continue your good credit practices and be persistent, eventually your score will respond.