During the economic recession, credit reports of several people were massacred. Broken down credit reports and credit ratings, prompted people to look for techniques that could be used to improve credit ratings. Credit cards to build credit are a very good option to improve a person's credit standing and do a uniform and systematic credit repair. In the following paragraphs, a small explanation of such a concept has been made.
Credit Cards for People Trying to Build Credit
A credit card which can be used to build credit is a great option. However one must understand some facts about the credit cards and its plan. The three important things that we need to analyze include, the APR or the annual percentage rate that is charged on the credit card, the credit rating agencies to which the company reports, and the credit limit of the credit card. Here are a few pointers as to what you need to look for.
- A credit card to build credit should have a very good APR. The annual percentage rate needs to be very stable and reasonable, look for a plan that has an APR between 7% to 15%. The smaller the range, the lesser would be your expenditure. A fixed APR or a zero APR will also be great, as your expenditure on interest would reduce down.
- Secondly, you will also have to make sure that the late fine and the additional APR in cash transfers or other fees are small.
- In the credit card offer you will have the names of the credit reporting agencies to which the credit card company reports. Ideally, the credit card company that you choose should report to all the major credit reporting agencies, that include Equifax, Experian and TransUnion. These cards which are used to build credit score often report to minor credit reporting agencies.
- A prepaid credit card will also severe the purpose but putting the prepaid card as the last option is a wiser choice.
Prefer the credit cards of prominent companies such as VISA, CitiGroup or MasterCard as such cards tend to have a foolproof functioning.
How to Use a Credit Card to Build Credit
Using the best credit card to build credit is fairly easy, and all you will have to do is control and calculate. In such a scenario, all you need to do is plan out the credit card's use properly. Here's how you can go about it.
- Get the credit limit of the card that is at least 25% lesser than your monthly income. Your APR should also be preferably included in the prescribed 25%.
- The second thing that you can do is plan out your expenditure for the month and then spend it through the credit card. Make sure that you leave a margin of about 30% or 20%, of your credit limit. This expenditure should be as consistent as possible. For example, you can get all your groceries and medical supplies, through this card.
- These expenditures can also include the ones that can be directly deducted from the credit card such as electricity bill, water bill, newspaper payments, etc.
- Create a separate savings account in the bank at the start of every month, put in an amount that is equivalent to the credit limit. Once done, do not touch this amount and make the payment instantly, as soon as you get the credit card bill.
Properly utilizing the credit cards to rebuild credit and then repaying the credit card bill should be consistent and disciplined due to the fact that every timely payment means that your credit score is going to go a bit upwards.