You just got your first credit card. It’s a big step in your financial journey and you are wondering about some of the basic do’s and don’ts. Here are three tips that will help you use your card wisely and build credit, which will help you when you want to take out a loan for a larger purchase.
Pay Your Balance Off in Full and On Time
The single biggest thing you can do with your card to build your credit score and protect your finances is to pay off what you owe on time. You don’t want to be carrying over unpaid balances or consistently making late payments because these actions will have negative impacts on your score and can cause you to slip into a situation where you’re unable to pay off your debt. Paying your balance off on time every month will boost your score and keep you from paying interest.
Don’t Borrow Too Much at Once
You’ll need to keep an eye on how much you’re borrowing. When you’re approved for a credit card, you’ll be given a credit limit. This is the maximum amount that the credit card company will let you borrow at one time. If you constantly get close to that limit, creditors can view you as a high-risk borrower. The percentage you use of available credit is your credit utilization ratio. The rule is to keep your ratio under 30%; going any higher than this can damage your score.
Use Your Card
While simply having a card can have a positive impact on your credit score, it will be much more helpful if you actually use it. A credit card offers revolving credit. When you take out a loan, you slowly pay off the amount that you borrowed, plus interest. With a credit card, as soon as you pay off the amount that you’ve borrowed, you can borrow it again. Consistent use builds your credit history and shows potential lenders that you can borrow and pay back money responsibly.
Chastity Wantz manages F&M Trust’s community offices in Waynesboro and Mont Alto.
