Establishing good credit is one of the most important things you can do to set yourself up to meet your financial goals. When you have good credit, the more likely you can be approved for loans to purchase a car, home and other expensive purchases at much lower interest rates.
One way to show you’re able to use credit responsibly is by using a credit card. Whether it’s your first credit card or you’ve had a credit card for years, here are tips to help you use your credit card to positively impact your credit scores.
1. Keep Your Credit Utilization Low
Keeping your credit utilization low and making your payments on time is essential to show you are a responsible credit cardholder. Your on-time payments can be reported to the major credit bureaus each month and are a major factor in determining your credit scores.
Using your credit card responsibly also means following the general rule that you should not use more than 30% of your credit limit. This allows you to have a better credit utilization rate, which is a measure of how responsible you are in using credit cards.
2. Don’t Make Large Purchases Unless You Can Pay Them Off Quickly
As part of keeping your credit utilization rate low, make only small purchases with your new credit card unless you have the cash to pay off a large item quickly. If you do decide to put a large payment – such as a house or car down payment – on your credit card, make sure you’re able to use money from your savings account or other funds to pay off your bill quickly.
Keep in mind leaving a large amount on your credit card not only means you have to pay interest on it, but the higher credit utilization rate can negatively affect your credit score as well. A lower credit score can mean you’re charged a higher interest rate on other purchases you make.
3. Monitor Your Credit
Another way to track how purchases and payments on your credit card affect your credit scores is by monitoring your credit report. Having a credit report monitoring service provide your credit report and scores is important as you plan for your future financial goals.
Many credit report monitoring services also offer identity theft protection. This includes alerts for suspicious activity on your credit card if your card is lost or stolen.