What is the Best Way to Use Credit?
1. Pay Attention to Your Balance and Always Pay It Off
When you’re working at getting out of debt and dealing with financial problems, it can be tempting to go cold turkey, cut up your credit cards, and live without credit. While this can be a great way to discipline yourself to accomplish your goals, it won’t help your credit rebound quickly. To improve your credit, you need to demonstrate to the computerized credit scoring system that you have an available credit limit and are using credit wisely. You should always be conscious of old credit card accounts as well.
2. Have One Active Credit Card, Use It and Pay It Off a Couple of Times a Year
Make sure that you have at least one active credit card (this could also be an overdraft or line of credit). If it’s a new credit card, make sure you use it at least once, pay it off, and then rarely use it. You can use the card once or twice a year to keep it active, pay off the balance, and then just let it sit. Having credit available to you and not using it shows you’re using credit responsibility. Just make sure you have a decent credit limit. Showing you can use a $100 credit limit responsibly doesn’t say much. Having a $1,000 or $2,000 limit and not using it, says something.
Using this approach, combined with either paying all your other debts on time or not having any other credit at all, can begin to fix your credit quickly and may give you a decent credit score within a year or two.
3. Try to Get a Secured Credit Card to Help You Build Your Credit
If you don’t qualify for a small unsecured credit card, then your bank or credit union may be able to give you a cash-secured credit card where you let them hold the equivalent of your credit limit in cash as collateral for the card in case you don’t pay the balance. After a year or two, you may qualify for an unsecured card, and then they can give you your money back. Using secured cards wisely is a great way to help you build your credit and show that you are now responsible.