The reason people have multiple credit cards at any given time is that these help build credit. Credit is required to finance a vehicle, get a mortgage, or receive a loan. To help your credit, it’s essential to use a credit card correctly.
Ready to find out the right way to use your credit cards? Continue reading to learn the most important things to know.
Available credit is one way a credit card vs. debit card is the same. Available credit is the total amount of funds you have that can be spent. This number can fluctuate based on how much of your available credit you’ve used.
A credit card balance is how much you owe back to the credit card company. This is the total amount of credit you’ve spent, plus any fees you’ve been charged.
There are several different fees a credit card company may charge you. The most common one is interest on the amount you owe. Additionally, you may be charged an annual or monthly fee for having the card.
To help build your credit, make sure you keep your total credit usage under thirty percent. This usage refers to your total credit, which includes the amount of all your credit cards.
For example, let’s say you’re like most average Americans and have four credit cards. The total available credit of all four cards combined is $5,000. Thirty percent of this total is $1,500.
So, you’d only want to use $1,500 between all cards to remain below thirty percent usage. If you do spend over this, make sure you pay it down before the end of the next billing cycle.
A significant factor in your credit report is the percentage of on-time payments. If possible, you want your credit report to show 100 percent of on-time payments. For this reason, you’ll want to always pay your credit card statements on time.
This doesn’t mean you have to pay off your entire balance by the end of each month. Instead, you simply need to ensure you’ve made the minimum payment, as determined by your credit card company.
Having more available credit looks good to potential lenders. After a few months of on-time payments and keeping your usage low, reach out to your credit card company to ask for a limit increase. Sometimes, the company will deny your request, but they may increase your limit at other times.
When a credit card is used responsibly, it can help increase your credit score. A higher credit score gives you better approval odds when trying to get a loan, car, or home.
Do you have more questions about how to use a credit card correctly? Then, feel free to browse our other blogs. You’ll find articles on this and related topics to help you learn more on the matter.