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Credit Card Use as a Means to Repair Credit
Why You Need Credit Cards for Credit Repair
In a perfect world, you’d pay cash for everything and never have to use a credit card. Credit has become so central to modern life that, if you’ve never had a credit card in your name, it’s going to be hard for you to get a car loan, a student loan or a mortgage when the time comes. The simple fact is you can’t have a good credit rating without having ever used a credit card! So what do you do to make sure that you use your credit cards wisely in order to build a good credit history? Can you take advantage of their convenience and benefits without falling into their built-in debt traps? Don't let credit card use sabotage your credit repair techniques. We’ve got some tips to keep you on track whether you're building credit or repairing credit.
Plastic Is NOT Cash - Use Credit Cards Sparingly. Credit cards provide
convenience and buying power when you need them, but should be used
primarily for two purposes:
Building a solid credit history and making occasional purchases. Credit cards are not
a replacement for money and shouldn’t be used as a way to spend more than you actually
earn. Not only are you building debt, but it’s a debt that usually carries a
high interest rate of anywhere from twelve to twenty-one percent.
Once you begin using credit cards for purchases that you really can’t afford,
you’re caught in the credit trap - where you continually add to your growing credit
card balance until it becomes impossible to get it down to a manageable size.
Starting To Build a Credit History Through Credit Card Use - A smart way to start is to use only one major credit card, not several. Use your credit card every so often to make purchases that are sizable, but not major. For instance, if you are purchasing something that you know you could pay off in a few months, charge it and pay it off quickly. This will improve your credit rating, but your interest payments will be minimal.
If you really want or need to carry a second credit card, don’t make it a major credit card, like Visa or MasterCard. Instead, consider a store credit card for a specific merchant such as a clothing store. This limits you to purchases of a specific type, which makes it more likely that you can easily pay off the balance in full every month. This helps you build a good credit history with relatively low risk.
Never use your credit card for expensive purchases that you haven't
budgeted, such as electronics, clothes, furniture, etc. If you see something you
really want, determine if you’ll have the money to pay it off in full at the end of the month.
If you won't, don't use a credit card.
Alternatives to Credit Card Use - If you really need to make an unexpected major purchase, there are alternatives. If you have a low interest store credit card, use it to get the washer and dryer you need. Better yet, see if you can get a better interest rate on a small loan from your bank or credit union. Be careful if a store offers a six month same-as-cash offer - this only works if you can actually pay off the balance in full at the end of those six months. To make sure you can, set aside enough money each month so that you can pay off all of your credit card purchases completely when the time comes.
Avoiding Extra Credit Card Fees - The most important thing about credit card use is to always pay as much as possible on your credit card balance. When possible, pay it in full. Your goal is to pay as little interest as possible - and the only way to do that is to keep the balance as low as you can. Also avoid getting credit card cash advances - these almost always have extra fees attached to them.
Avoid Late Fees, another way credit card companies get extra money out of you. Make sure you always pay your bills early - don't wait and pay on the due date. Usually the date listed on your statement is the date your credit card payment needs to be in their hands, not in your mailbox. So send your payment at least seven days before the due date to protect yourself from slow mail or any other problems - or better yet, pay online, if that’s an option. If your payment is even one day late, it will affect your credit report.
Watch Your Credit Card Use. Perhaps the most important part of using credit cards wisely is being aware. Don't just automatically pay the bill without really looking it over. Instead, review the charges so that you understand how much you used your credit card that month, how big a finance fee you’re getting hit with, and what other penalties and fees, if any, were tacked on.
Seeing these extra costs might make you think twice about using your credit card at the mall during your next shopping spree - and make you think more carefully about what you’re buying. And that’s the real key to using credit cards wisely.
If credit card use fit into your overall debt management strategy, visit:
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