Credit cards can either make you or break you. If you do not handle your credit card usage responsibly, credit cards could ruin your credit score. However, when used the right way, they can help you build good credit standing and open you to more financial freedom. But how can a small square of plastic help you build your credit scores? And why does a good credit standing matter?
Your credit standing is based on your credit history, which is a record of your past financial behaviors (i.e. do you pay your dues on time?). It tells a potential lender your likelihood of paying them back and tells them how trustworthy and reliable you are. Your credit history is recorded in your credit report, which indicates your risk as a borrower through a numerical value called the credit score. If you have a bad credit score, banks and other businesses may not want to do business with you or would offer you terms that may be harder than if you had good numbers on your credit report.
So how can you achieve good credit standing using your credit card?
Being a responsible spender when using your credit card will ensure that you will build good credit standing. But here are a few things you need to know.
First off, you’d need a credit card. Choosing your first could be tricky. A good rule of thumb to follow is to apply for a credit card that suits your credit score or your capacity to pay. You would not want to have a card with a credit limit you cannot pay off in full. Also, apply for cards that do not have annual fees and take note of the perks. These things can lighten your financial burden.
If you already have a credit card, always pay on time. Remember that little thing called credit report? If you pay your dues late, this will reflect on your credit report, and when it does, this could lower your credit rating. Use your credit card to pay for little expenses that you know you can pay off, like your groceries. Using it frequently can help you build credit, and as long as you pay your dues on time, it will help you build a good credit score.
Pay in full. Credit card interest rates can get insanely high. If you only pay the interest per month, your credit card debt will only get bigger. Try to pay in full, and if you cannot, at least pay more than just the minimum due.
Never spend more than what you have. If you are eyeing that new phone that’s over $1000 but you don’t have that thousand in your bank, don’t use your credit card. Treat your credit card like a debit card. This way, you are sure you can pay off your debt when your bill comes due.
This article originally appeared on Payment1.com.