Credit cards are not just one type of financial asset, but also an easy gateway to a better credit score. Having a low credit score results in high interest rates and, in some cases, credit rejection when applying for new credit cards and loans. Despite being a three-digit figure, credit score is the primary factor that determines your access to loans; financial institutions use these figures to appraise a loan request and if it falls short of benchmark, a loan request will be rejected. These rejections can be mitigated by a credit card, which can help you rebuild your credit scores. Using a credit card wisely can benefit your credit score through a combination factors such as credit mix, payment history, and utilization rate.
Ways to Improve Credit Score Using Credit Card
No matter how low your credit score appears to be, there are ways to restore it with a credit card. The process entails adopting habits that are trusted and known to be effective, such as using a Credit Card Designed for Rebuilding Credit.
There are credit cards designed specifically for people who are either building a credit history for the first time or rebuilding a poor credit history. The best of these cards will have features designed specifically to help develop good credit habits and monitor your improving credit score. The most common kind of credit card for this situation is a secured credit card, which is one that is supported by a monetary deposit, which acts as collateral for any accrued debts. Often the deposit will be the same value as your new credit limit. A secured credit card can have easier qualification standards, but may be costly if the deposit is a barrier for you. You can also look for unsecured credit cards that target people rebuilding credit. Look for a card with no annual fees, free credit monitoring and with the possibility of increasing your credit limit. An unsecured credit card designed for people rebuilding credit has all the benefits of a secured credit card, without the deposit. Once you have found the right card, see if you can prequalify before you apply for a credit card. This will help you avoid minor credit damage from applying to multiple cards in case of a rejection.
Avoid Closing Down Credit Cards
Most people enjoy cancelling their credit cards when they believe they have outlived their usefulness. This habit immediately lowers your total credit limit, which is critical in the credit building process. In short, the credit utilization rate, which accounts for 30% of the credit score, is determined by your current debt as well as your total credit limit. For instance, if you have two credit cards with a total credit limit of £25,000, your lowest balance should be £7,500 to reflect positively on your credit score. Therefore, instead of closing your credit cards, they should be kept open to ensure your credit utilization rate improves.
A low credit score can make it difficult to obtain a credit card and can also increase interest rates. As a result, making a concerted effort to improve your credit score through the use of a credit card has numerous long-term benefits. Be sure to use your credit card wisely, making monthly charges which are repaid in full, in order to rebuild your credit score as quickly as possible.