It’s true. You can use a credit card to help repair your bad credit.
But before you put down the scissors and get your shopping shoes ready, let’s talk about using a credit card the right way. And that doesn’t include maxing out your credit cards.
Disclaimer: If you’re struggling to manage your spending habits and are tempted to max out your credit cards, it’s best to take the scissors back out.
Using credit cards the right way takes discipline, but is pretty simple actually.
The right way includes making small charges to at least three open credit cards.
This shows creditors that you can manage multiple lines of credit without going overboard.
Another reason for only making small charges is because you never want to reach the limit on your credit cards. Although a limit is given, you shouldn’t actually reach it.
If you have a credit card limit of $1,000 and you max it out, you will be hurting your credit score. If you have a balance of $900, you are at 90% used, which is hurting your credit score. If you only have a balance of $250, you are at 25% used and that is helping your score. The lower the percentage used, the higher the score.
The second part to this is paying off the entire balance each month.
The goal of a credit card isn’t to buy things you don’t have the cash for, but to begin building a good credit history and instill good credit habits,
says LaToya Irby on About.com.
This means that whatever amount you’re charging on your credit card, you should have the payment available. Put it aside so you won’t spend it and pay the full credit card balance each month, even if you don’t have to pay it in full.
These habits will show creditors that you can handle credit and maintain it.
Here are some ideas for small charges:
- A gift
- Dinner date
- Lunch once per week