How to use a credit card to build your credit

College student studying

Once young people move into adulthood, it is time to start building your credit. A good credit score is essential to get a mortgage, loan or line of credit, so you should start building a positive credit history as soon as possible. One of the best ways to do this is with a credit card. However, keep in mind that a credit card is not “free money”, and it is important to use it responsibly.

Pay On Time

Once you get a credit card, it is important to make your payments on time. A late credit card payment or skipped payment will hurt your credit score, so come up with a system to remember to pay your bill every month. Common strategies include calendar reminders, or setting up a pre-authorized bill payment in Online Banking.

To avoid paying interest, you will want to pay off the full credit card bill every month. Keeping a balance on your credit card can get expensive quickly.

If you Don’t Have the Money, Don’t Buy it

 It can be easy to over-spend with a credit card, because when you charge items to your credit card, you aren’t automatically taking money out of your bank account. If you aren’t careful, you can find yourself going into credit card debt. To prevent this from happening, set a budget for yourself and stick to the following rule: if you don’t have the money to pay a purchase off right away, don’t make the purchase.

Watch your Credit Utilization

Another factor to look at when building credit is how much of your credit you’re utilizing every month. If you’re frequently maxing out your card, or have a balance above 50%, this has a negative impact on your credit score. If you have a low credit limit but lots of expenses every month, try paying off your credit card every two weeks, or even every week to keep your credit utilization ratio low.

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