Building credit is one of the first steps to becoming financially independent and fiscally responsible. Additionally, building credit and boosting your credit score will help you with future financial endeavors, such as being approved for an auto loan or a homeowner’s loan. If you’re looking for some ways to improve your credit score, read on for some tips for fixing bad credit.
Understand the Difference Between Debit and Credit
First and foremost, you need to understand the difference between debit and credit, and how that difference will affect your credit score. Unlike with credit, making purchases with your debit card won’t help to boost your credit score. A debit card is linked to your checking account, so all purchases that are made with your debit card are automatically deducted from your account.
Credit, on the other hand, isn’t automatically deducted from either a checking or a savings account. Rather, a credit card works on the basis of borrowing a certain amount of money from a company, like Visa, which you then agree to pay back, with interest. Building a history of paying back those debts is what helps good credit, and failing to pay them back builds bad credit.
Pay Off Your Credit
When you go to pay your credit card bill each month, you’ll see a line that reads something to the effect of “minimum amount due” next to a figure that seems pretty manageable. However, this minimum amount due is not your total credit card balance, and shouldn’t be mistaken as such. Rather than paying your minimum balance due each month, try to pay off your credit card in full. Otherwise, you’ll be accumulating more interest and harming your credit score. Simply put, don’t spend more on credit than is actually in your bank account each month. Additionally, make sure that you pay your bill on time. Late fees and interest charges will accrue if payments are late, and your credit score will be negatively affected.
If you have a lot of debt racked up on credit, now’s the time to stop spending and start paying it off. Set up a financial plan where you budget for each month appropriately, factoring in the amount of money you’ll need to pay towards your credit cards.
Use Your Cards
This might seem to contradict the last tip, that you not to use your cards each month if you can’t afford to pay them off. While this point still remains true, you should try to use your credit card lightly each month. It’s best to spend no more than 30% of your total credit card limit each month. However, not using your credit card at all can also hurt your credit, as a creditor may close an old account if they think that it’s no longer in use. Therefore, use your credit card occasionally and for small purchases.
Building credit and maintaining a good credit score doesn’t have to be difficult. By understanding the difference between debit and credit, paying off your credit card in full each month, and using your cards lightly, you can quickly be on the pathway towards a great credit score.