Credit cards are generally known as great tools for unexpected emergencies or situations when an individual cannot keep up with his monthly expenses. To a degree, they can be extremely useful, however, most people tend to use them too often or delay paying them off and this can lower their credit score by a considerable amount. Furthermore, lenders typically look at a potential borrower’s credit utilization ratio when assessing his eligibility for loans. This ratio is calculated by looking at the amount of money an individual has access to (through his credit cards) and then determining what percentage of the total available amount he is currently using.
In most cases, a credit utilization ratio of over 30% will lower your credit rating. In other words, as useful as credit cards may be, using them improperly can also have serious consequences and lower an individual’s credit rating.
This having been said, having a healthy financial life and paying attention to how you use your credit cards can also help you build up your credit score. Here is what you need to do:
- Find a Credit Card That Comes with Great Rewards
Different lenders have different offers when it comes to credit cards. Look for one that comes with travel perks and cashback offers. This way, you will also get various benefits on top of raising your credit rating. Generally speaking, you should first look for a credit card that can be used both in the country as well as abroad and works on a no-fee basis. At this point, you should also make sure that you choose a credit card that has a relatively low interest rate and as few additional charges as possible.
- Use the Card in Stores That Offer Discounts
Various stores offer discounts to clients that pay for their purchases using certain credit cards. Be sure to use your in these shops to get as much as possible out of your deal. However, you should not restrict the card’s usage to these locations. If you need to, pay using the credit card in any store that you want.
- Use the Card Every Couple of Weeks, but Repay the Money as Soon as Possible
How often you use your credit card will affect your credit rating. The golden rule is to use the credit card sparingly and to always repay the money as soon as possible. By doing this, the lenders will conclude that you can manage your income and keep your debt under control.
- Never Reach the Limit of the Card
If you have a decent credit score, lenders will set a relatively high borrowing limit for your credit card. However, his does not mean that it is a good idea to ever max it out. Regardless of how much money you can borrow using it, try to only make small purchases with your credit card. The important thing here is that you are not reserving credit that you do not intend to use. How little you borrow is irrelevant.
- Keep Your Credit Utilization Ratio Under 30%
Your credit utilization ratio is calculated by looking at the limit placed on your credit card and then determining what percentage of that you have borrowed at any given time. Ideally, you should keep this ratio under 30%. Anything more than this will temporarily lower your credit rating and make it more difficult to get loans from the bank. Please keep in mind that the effects of going over the 30% limit are temporary. Once you pay off your credit card debt, your credit rating will return to normal.