Payment cards such as credit cards can help you build your credit score. Some things to keep in mind to maintain your credit score is to keep a low balance and pay your bills on time.
Prepaid cards may look like credit cards but they operate in such a way that does not benefit your credit score. These cards are sold alongside gift cards in most retail stores and you can use them much the same way as credit cards. The only difference is you preload these cards with your own money, so it doesn’t have anything to do with credit and will not affect your credit score. Once you’ve used up the funds you’ve deposited in the prepaid card, it’s empty and you will have to deposit more or purchase another card. Prepaid cards do not need an application, your credit score will not be checked to open one, and these cards are not reported to credit bureaus and are not considered when calculating your credit score.
A secured credit card is similar to a prepaid card but can be a stepping stone to build your credit. You deposit some funds into your secured credit card and the lender will use this as collateral for the card’s balance. For example, if you deposit $500 into a secured credit card, then the monthly credit limit will be $500. If you don’t pay off your bill every month, the lender will charge interest, just like a regular credit card.
There isn’t a quick fix for raising your credit score. It takes time and discipline. Here are five good habits that will help you build your credit:
Only spend what you can pay: Put yourself on a budget, and build some savings in a separate account for months when you do overspend.
Always pay on time: Paying your bills and making credit payments on time is one of the best ways to improve credit. Setting up reminders or automatic payments can help.
Diversify your debt: You want more than just credit cards on your credit report to demonstrate your ability to pay back multiple types of debt. Auto loans, student loans, mortgages and personal loans are examples.
Don’t open too many accounts at once: Several new accounts popping up at once can lower your credit score.
Keep accounts open: Keep accounts open as long as possible, even once you pay off the credit. This will increase your credit length history, which impacts your score.
Comments