Credit scores are big business these days and whether consumers choose to use credit or not, a good credit score is a vital thing to have. Without the use of credit it is difficult for lenders, landlords and employers to consider if you are fiscally responsible, a determination made in far more areas of life than simply obtaining a credit card. High credit scores open doors to preferential interest rates on mortgages, loans and credit cards, as well as influencing insurance premiums.
One of the obstacles which young people and those new to credit both face, is actually having no credit score to be judged on. Thus obtaining a credit card is the easiest way to both establish and increase a credit score. The simplest and most effective way of doing this is to obtain a credit card and use it in a way that that the credit scoring system approves. The FICO credit score is the most widely used and the FICO site myfico gives excellent information and guidance as to how best to use credit cards to increase credit scores.
It may be necessary for those new to credit to start off with a secured credit card to show they are responsible enough to handle unsecured credit. It is far better to use a secured card from a reputable issuer than to use high interest store cards for the same purpose.
The optimum way to use credit cards with the intention of improving or establishing credit is to use a card on a monthly basis to establish a regular pattern of payments. Disinformation and credit cards myth abound, but the scoring algorithm awards the highest scores to those who use less than 30 per cent of available credit and clear the balance in full each month.
Paying only the minimum payment is not detrimental to the score providing it is paid on time each month, but accruing interest on carried forward balances can be a costly error. Carrying a balance further increases the possibility of utilizing too much available credit and thus straying over the 30 per cent ratio.
Paying the balance in full is not in itself enough to increase credit scores. It is vital to ensure that the card is not maxed out, even if paid in full by the due date. It is far better to use two credit cards and utilize 30 per cent of available credit on each, rather than use one card only but utilize 60 per cent. Card holders should be aware of their credit limits and remain within the prescribed boundaries.
The longer a credit card is held the more it will help to increase credit, as credit history is a vital component of credit scoring.
Using a credit card over time on a regular basis; remaining within the credit ratio limit; and paying off the balance in full each month, will improve your credit score. It is also good practice to use credit cards in this way to avoid paying unnecessary interest. A good credit score will give access to the premier cards which offer insurance coverage, statement credits and cash back offers, which can all be used to the benefit of the card holder with no cost involved.