Credit cards are a great tool to allow a borrower to have access to instant money for spending, however they do come with some large responsibilities that if misunderstood, can lead to financial difficulties.
Being approved for a credit card is usually one of the first signs that you’ve crossed a crucial point in your life as a young adult. It means that a financial institution is trusting your capabilities and they consider you responsible enough to handle debt.
This new kind of commitment comes with a new item that shouldn’t be overlooked: your credit score, which is the records of how financially trustworthy you are to lenders. It is important to note that not just transactions affect your credit score, in fact, from the very moment you start applying for one will affect your score.
How does a credit score work?
This score is based on a report that credit bureaus build based on the number of credits and loans you have with companies. This report will determine how likely you are to pay back the money you´ve been loaned. Credit bureaus receive a report of your credit card activity from the bank(s) that is doing business with you. This report includes your payment history, account status, balance and all the information that is relevant for your credit score.
How many cards do I need to have a good credit score?
Since a credit score measures everything from the moment you apply for a credit card with a bank, it means that having no credit is not good. If you´ve never had credit for a purchase, contract or any type of loan, it means that you will likely have a low credit score.
This is extremely frowned upon by almost all lenders, and accessing a credit card to initiate a financial agreement with a bank may be difficult to achieve under such circumstances.
Other major commitments, like getting approved for a mortgage, or a car or apartment loans can be negatively affected by this, and that’s why credit cards are the best way to start building a financial reputation for yourself.
Strong saving habits and a major sense of responsibility are a must if you wish to use your credit score in the future to access other things that can have more significance, like the ones mentioned above.
Be aware of your credit limit:
Your credit card limit is the total amount of credit available which has been approved by the lender. Another factor that looks bad to banks is when you use the total amount of your credit. Maxing out your credit card limit makes you look like a financial risk, even if you pay back in time. Experts recommend keeping credit spending below 30% of your credit limit, so you don’t look like an irresponsible borrower to banks.
Not paying in time
This is one of the worst things you can do when handling a credit card, even though technically, your credit report won’t show how much you paid the last billing cycle. However, the difference between your balance and your credit limit is going to be included in the report.
A good tip is to make bigger payments in order to reduce the balance, this will definitely boost your credit score and you´ll be out of debt shortly. Additionally, late payments start counting after the first 30 days of being late, so keep your good credit score by paying before the initial due date.
Too many declined credit card applications
Every time you apply for a credit card, it goes into the credit score report, regardless if you were approved or not. So if you were declined once, try waiting a few months until your situation improves and you have more means to be certain that you will be approved.
Not having your credits open
Your credit score is boosted if it shows that you´ve maintained your credit cards for a long time and a major plus is if you also have a good record of on-time payments throughout the years. Sometimes it can be especially hard to meet payments and maintain a good credit score, that’s why you need to have string saving habits and a keen sense of responsibility.
If the worst happens and you can’t meet your payments on time, maybe trying to boost your earnings is the wisest move. Looking for any PPI unclaimed under your name is a good way to have a substantial amount of unexpected money that you can use to cover for a credit card payment or a loan.
