How to Use a Credit Card Wisely
Did you know that credit cards are one of the most widely available tools used to build credit? The truth is, credit cards can be intimidating but they don’t necessarily deserve the bad reputation. However, it’s also true that the endless jargon and pages upon pages of fine-print T&Cs can be very confusing, especially for those of us who don’t live and breathe credit.
So you might be thinking: “Cool, I have a credit card - but how can I use it in a way that will build my credit score?” Well, keep reading, because we’re about to reveal our top tips and tricks.
Truth to be told, using a credit card isn’t too complicated once you become familiar with credit card best practices. Below are tips on how to use a credit card wisely.
Related Read: 8 Tips to Get Your Credit Fixed in 2022.
Pay Your Balance in Full and on Time Each Billing Cycle
That’s it. That’s the tip! Plain and simple.
Payment history is the single-strongest factor impacting your credit score and that is the reason you should pay your balance in full and on-time each month. Making timely payments demonstrates your ability to handle credit responsibly. This can help you significantly when applying for lines of credit or requesting a higher credit limit in the future.
You may be tempted to only pay the minimum amount due on your credit bill to simply keep more funds in your account. However you need to bear in mind that the interest your balance accrues can quickly grow out of hand. This is the most common way of falling into debt. For this reason, paying in full is the best strategy because you avoid paying more than you actually spend due to the interest accrued. In the case you aren’t able to pay in full, always make sure to pay the minimum payment as missed payments can hurt your credit score.
Use Your Credit Card Like a Traditional Bank Card
How to use a credit card? Use it like a traditional bank card, simple yet effective. Whilst credit cards do provide you with the opportunity to spend more money than you have on hand, this is ill advised. Therefore thinking of your credit card as a traditional bank card or even cash means you only spend what you can afford. By maintaining a low credit balance and avoiding a ‘revolving balance’, you’ll be doing yourself a favour. A series of revolving balances can prove to be costly in the long-run due to accrued interest over time.
Stay Below Your Credit Limit
Your credit card will either have a credit limit, or a maximum amount you can borrow at a given time. The amount given to you will vary depending on several factors, including your credit score. It is best practice to never exceed the credit limit or maximum amount given to you. In fact, it is suggested that you should aim to use no more than 20-30% of your credit limit at any given time.
This concept is commonly referred to as your credit utilisation ratio. For example, if you have a £1,000 credit limit, your balance should never exceed £300. Now, you might be planning to use your credit card for more than £300 worth of expenses a month - and that’s okay - just make multiple payments so that your balance never exceeds the amount given to you.
Pro Tip: Lenders love to see regular activity on credit card accounts; it can be helpful to make multiple bill repayments per month.
An additional trick for improving your credit utilisation ratio is to request a higher credit limit from your lender or credit provider. However - and this part is crucial - a higher credit limit does not equate to higher spending opportunities. If you can, keep your spending at the same level to keep that credit utilisation ratio low. This can benefit you in the long-run, and can potentially improve your credit score.
Don’t Close Your Old Cards
Remember that old card tucked away in your wallet, the one you no longer use? Don’t throw it away. Don’t close it. Keep it. Your credit history accounts for a significant portion of your credit score. If you close your card, the closed account will eventually be dropped from your credit report. Since old cards can help demonstrate that you’ve had good credit habits for a significant period of time, consider keeping it.
Build Credit with Pave
If you have no credit or a low credit score, a credit card can help you build it. But that’s only true if you use it wisely. Fortunately, through Pave’s bills monitoring, personalised credit fixes, and payment reporting, we make it easier for you to track your bills, make payments on time, and experience the benefits of credit card use.
Bill monitoring alone is just one reason why hundreds of thousands of people across the UK have turned to Pave to help them build credit. We’ve helped over 90% of our customers improve their credit scores. Ready to see for yourself why hundreds of thousands of people in the UK have turned to Pave to build their credit scores? Check us out on the App Store and Google Play, or sign up online today!