Things You must Know About Credit Cards – Nowadays, credit cards have taken place in our lives as an indispensable part because of their easy-to-use and very convenient payback system. It offers discounts, different-different offers, and deals that are comparatively unmatched by any other financial product for the wise user. However, credit cards can also become debt traps if it is not used correctly, or if you spend more then you have to repay when the bill comes around. So, in this article, we read briefly about the pros & cons of credit cards.
Getting a credit card has its own pros & cons. As we know, credit cards are convenient for making purchases and even some offer rewards on your spends. A credit card can be a helpful tool for building a good positive credit history. If you are looking to have your first credit card then it is important for you to know what are the pros & cons of credit cards.
A credit card allows you to make purchases and pay for them later on. It is like a short-term loan. So, in this article, we discuss the benefits of credit cards and the disadvantages of credit cards and also discuss how to use credit cards in the right way. Read along.
As we know, a credit score holds the key to many American people’s dreams. When you move to a new country, you arrive with a lot of desires. You want a decent car, a nice apartment overall, and a better life. All we know is that as middle-class people we can’t buy everything so easily. So, to have access to money and loans, you should have a good credit score. In this article, you will get all the 7 tips to build credit score asap.
The credit score measures the credit risk of a consumer. It supports the lenders to assess the user’s ability to repay any credit item that the consumer has taken and accordingly can take decisions of the interest rates and any other terms of credit offer and loans. In your credit report, you can check your credit score that consists of your current debt, bill payment history, and additional financial expenses you have spent.
In the United States of America FICO is the most popular credit score. FICO stands for Fair Isaac Corporation; it is a data analytics company that is developed by the score metrics. A credit score is a three-digit number that ranges between 300 and 850. If you have a higher credit score then the chances of getting a loan or credit taken have 99% increased. So, now let’s know how to build credit score asap.
There are a lot of tips and tricks on how to improve your credit score – and we’ll get to those in a moment – but nothing will raise your credit score faster or more effectively than paying bills on time and using your credit cards judiciously.
“If you are trying to give people advice for improving their score, pointing them toward those two components – things that are relatively easy to change – is a very good start,” said Tahitian Homo off, an assistant professor of Economics and Public Policy at New York University, who did a two-year study on credit scores and published a paper on it in April of 2018.
Homo off, who is affiliated with the Robert F. Wagner Graduate School of Public Service at NYU, added: “There are some parts of the credit score algorithm that are very hard to effect, but paying bills on time and being aware of credit utilization are things people can do with some ease, even if they’re in a tough financial position.”
Americans obviously are paying more attention. In July of 2020, the average FICO score hit a record high of 711, an 11-point increase from 2018. That has put millions of consumers in a better position to get low-interest, affordable credit opportunities.
Below, we’ll go over how credit scores work and offer some tips on how to raise yours.
What Is a Credit Score?
A credit score is a numeric summary of your credit history, a commonly used method for lenders to predict the likelihood that you will repay any loans they make to you.
Credit scores range from 300 (poor) to 850 (excellent). Higher scores illustrate consistently good credit histories, including on-time payments, low credit use and long credit history. Lower scores indicate borrowers may be risky investments because of late payments or overextended use of credit.
There are no exact cut-offs for good scores or bad scores, but there are guidelines for each. Most lender’s view scores above 720 as ideal and scores below 630 as problematic.
Consumers are becoming more aware of how raising their credit score improves their financial outlook and Homo off’s study has evidence of it. She found consumer behavior improved dramatically when people were aware of their credit score.
“Many people thought they had a great score, but then found out they overestimated it,” she said. “They realized they had to start changing credit behaviors, so they stopped making late payments, they paid off cards with a balance and their scores improved.”
The FICO credit score is used by 90% of the businesses in the U.S. to determine how much credit to offer a consumer and what interest rate to charge them for that credit.
FICO uses five major components in the equation that produces your credit score. Those five include:
- Payment history (35% of score): Do you pay on time? Do you pay the full balance, the minimum or somewhere in between?
- Amounts owed (30%): How much of the credit you’re allowed, do you use? If you exceed the limit, you are seen as high risk and penalized. If you use less than 30% of credit allowed, you’re considered a safe borrower and get a positive rating.
- Length of credit history (15%): The longer you have an account, the better the scorekeepers like it.
- Credit mix (10%): FICO likes to see a mix between credit cards, mortgages and auto loans … as long as you can afford them! Don’t take out another loan in hopes it will improve your score. This category doesn’t count enough in the overall equation.
- New credit (10%): It’s OK to occasionally open a new account, but if you are applying for several accounts in a short period, you are a risk and your score will reflect that.
As you go through life, your credit score will fluctuate. How much it fluctuates depends on how reliable you are at repaying debt on time, especially credit cards and installment loans. When you use credit more often, whether it’s by taking on more credit cards, getting a mortgage, taking out a student loan or auto loan, your credit score changes to reflect how you deal with the responsibility of more debt.
7 Tips to Build Credit Score Asap
If your credit score is the lowest and now you want to build your credit score asap then you are at the right place. Can you increase your credit score by 100? Then yes, you can. Rod griffin who is the director of public education of credit bureau Experience had said yes you can. The lower the person’s score can achieve the 100-point increase score asap. So, let’s know those 7 tips that will help you to build your credit score asap. If you are like many consumers and don’t know your credit score, there are several free places you can find it. The Discover Card is one of several credit cards sources that offer free credit scores. Discover provides your FICO score, the one used by 90% of businesses that do lending. Most other credit cards like Capital One and Chase give you a Vantage Score, which is similar, but not identical. Same goes for online sites like Credit Karma, Credit Sesame and Quizzes.
The Vantage Score comes from the same place that FICO gets its information – the three major credit reporting bureaus, Experience, Trans Union and Equinox – but it weighs elements differently and there could be a slight difference in the two scores.
Once you get your score, as Homo off suggested, you might be surprised if it’s not as high as you expected. These are ways to improve the score.
Pay on time.
Any tips can’t increase your credit score if you do not pay your bill on time. So, pay your bills on time. Do you know? Payment history is the only biggest factor that affects your credit scores, late payments can be in your credit report for 7 and a half year. If you have missed your payments by 30 days or more then immediately call the creditor.
If you can, then arrange to pay up and ask the creditor to consider no longer reporting the missed payments to the credit bureaus. If the creditor won’t do that, it’s worth getting current on the account immediately. This is the important tip to build credit score asap.
Build the Higher Credit Limits
To build your higher credit limits just ask. Whenever your credit limit goes up and your balance still stays the same, it instantly lowers your overall utilization of credit, which can improve your credit. Simply, call your card issuer and ask them if you can get the higher limit without a hard credit inquiry, which can reduce your score by a few points.
If your income increased or you’ve added more years of positive experience of credit, you have a decent shot at getting the higher limit. Few issuers may be willing to work with you due to covid-19. So, build higher credit limits to build credit score asap.
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If you make small payments that means micro payments throughout the month, so these will help you to support your credit card balances down and improve your credit. Try to make payments throughout the month that moves the needle on a credit score factor that is known as credit utilization. Another factor that highly influences your score is the payment history.
If you are able to keep your utilization low instead of letting it grow toward a payment due date, it can benefit your score right away. So make frequent payments to build credit score asap.
Credit report errors.
Any type of mistake on one of your credit reports could pull down your credit scores. If you can fix it then it immediately improves your scores of credit. Currently, you are entitled to a free report every week from each of the three major credit bureaus. Experience, Equinox, and Trans Union.
Simply, request those reports and check them for mistakes, such as payments that are marked late which you have paid on time, and any negative information that’s too old to be listed anymore. If you have found them, dispute those mistakes to get them removed. 30 days are there to investigate and respond for credit bureaus. So dispute the credit report errors to build credit score asap.
Secured Credit Card
Another method to build credit score asap is to use a secured credit card. This type of card is backed by deposits of cash. You pay it through the mode upfront and your deposit amount is usually the same as your limit of credit. You can use it as a normal credit card, and your on-time payments help to build credit score asap. Choose a secured card that reports your activities of credit to all three credit bureaus. You can also look for alternative credit cards that do not require a security deposit from the consumer.
Be an Authorized User
To build credit score asap, be an authorized user. If you have a friend or a relative with a long record of being a responsible credit card user and a high credit limit, do consider asking if you can be added to one of those accounts as an authorized user. The holder of the account does not let you use the card or even tell you the account number to build credit score asap. If you have a thin credit file this will work best for you.
Keep your credit Cards Open
If you want to build credit score asap, be aware that closed credit cards can make it hard to build credit score asap. Closing a credit means you lose the credit limit when your overall calculation of credit utilization is calculated. Which can reduce your credit score. Just keep the card open and use it eventually.
How Long Does It Take to Rebuild Credit?
Typically, it takes at least 3-6 months of good credit behavior to see a noticeable change in your credit score. It is difficult to make a change any faster, unless the negative information on your credit report was a minor blip, like being late with bill payments one month.
While it is impossible to put a specific time frame on credit repair, it is safe to say the less negative information you have on your report – late payments, maxed out credit cards, constant credit applications, bankruptcy, etc. – the easier it is to repair your credit score.
It takes more time to repair a bad credit score than it does to build a good one. Mistakes penalize your credit score and can prevent you from being approved for a loan. Though there are lenders that offer loans with bad credit, they end up costing hundreds or thousands of dollars in higher interest rates when borrowing. A poor credit score also can be a roadblock to renting an apartment, setting up utilities, and maybe even getting a job!
You are not going to lose nearly as many points if you are late with one payment as you will if you are delinquent for several months to the point where your account has been turned over to a collection agency. The severity of the second situation is far greater than the first and your score will reflect that.
Here are some time frames for negative information that detracts from your credit score.
- A delinquent account remains on your credit report for seven years.
- Car repossession stays on your report for seven years.
- Chapter 7 bankruptcy is on your report for 10 years. Chapter 13 remains for seven years.
- Credit application inquiries remain on your report for two years.
- Public record items such as property liens are on your report seven years.
Remember that the damage to your credit score diminishes over time. So, for example, a Chapter 13 bankruptcy in Year Six has negligible impact when compared to its effect in Year One.
How to Fix Your Credit Score Fast
Review Your Credit Report
Begin by investigating your credit report for negative information and have it removed. Yes, such things are entirely possible.
- Request your full, free credit report. You are owed one per year from each of the big three credit-reporting agencies: Experience, Trans Union, Equinox. One in five credit reports contain errors and/or omissions that can significantly drop your score. Vigorously dispute every discrepancy; provide copies of documents that support your claims.
- For accounts in collections, explore “pay to delete,” a method of removing negative information by negotiating a settlement with the agency holding your bad debt. Get the agreement in writing before you send money.
- Send “goodwill” letters to creditors with whom you’re having difficulties. Typically, goodwill letters are short, simple, pleasant, and direct requests to lenders asking them to remove negative entries. Creditors are not obligated to oblige, but you may strike pay dirt, especially if you’ve had only a few blemishes with the company in an otherwise punctual history.
Sign up for Experience Boost
If your low score is primarily the result of being new to the credit-seeking game and you are timely with your payments for utilities and your cell phone, ask the lender to pull a report from Experience, using its “Experience Boost” plan. This hybrid model draws on what the industry calls “alternative credit data” — non-traditional payments that provide lenders useful insight into an applicant’s creditworthiness.
The way forward gets a little steeper from here, so it’s a good idea to know what you’re up against.
Game the FICO System
Of the five categories influencing your credit score, there’s really only one you can influence significantly short-term: your credit utilization ratio.
Pro tip: Make sure payments arrive before the statement closing date. That way, lower balances get reported to the FICO and the big three.
Most other factors being equal, consumers with scores in the upper 600s — the bottom of the “good” range — have credit utilization ratios between 40-50%. To get into the 700s, your utilization must sink below 30%. If you’re in a hurry to help your score, use under 15%. The less you use, the better.
Fixing this is a cinch … if you have a fat savings account or maybe a wealthy (and generous) uncle. Otherwise, you need to find extra money in your budget (or extra income in your month), combined with spending discipline, to whittle down those balances.
Another way to attack high balances is with a debt-consolidation loan — if you can swing it. Present your plan to a bank or credit union, or go online to any of the assorted peer-to-peer lenders and you may be able to zero out your credit-card balances at the same time you secure a lower interest rate than you were paying Visa.
We’ve read here and there another way to lower your credit utilization ratio is to seek a boost in your balance limits from your current lenders. The mathematics of this gambit are undeniable, but the idea of seeking higher balances when we’re having trouble managing the balances we have makes our stomached ache.
Become an Authorized User
If you have a my stiflingly benevolent parent with impeccable credit, ask to be added to his/her account as an authorized user. This will not only help your credit utilization (ideally the added account doesn’t have a high balance) but it should also lengthen your credit history. Remember, this card is strictly for a credit boost, so do not under any circumstances, use the card when it arrives in the mail.
Establishing a Credit Score
If you don’t have any credit history, get started! A positive credit history helps out nearly every aspect of your financial future, whether it’s purchasing a car, renting or buying a home, or even applying for a job.
The easiest way to start is to apply for a line of credit. Credit cards for gas stations or department stores are generally easy to obtain and are good ways to build solid credit. Use them responsibly, being careful not to overcharge. The key is to pay your bill on time each month.
If you can’t get approved for a traditional credit card, sign up for a secured credit card. These cards require a deposit, often equal to the credit limit you will be extended with the card. For example, a $500 deposit will get you a secured credit card with a $500 spending limit.
These cards act the same as unsecured cards in that you receive a monthly bill and payment is expected each month. Be sure that the spending on the secured card is reported to the credit reporting bureaus.
In most cases, as long as you pay each month, your deposit will be refunded when you are finished with the card. Your deposit can’t be used to make the monthly payments.
Becoming an authorized user is another way to establish a credit score.
Being an authorized credit card user is the best position possible in the credit world: you get all the benefits and none of the responsibility. You spend, someone else pays, and everybody’s credit improves.
This obviously-lopsided arrangement usually happens with a spouse, parent, sibling or a close friend. It takes nothing more than a phone call to the card issuer by the cardholder permitting one to use the card without paying the bill.
That is the sole responsibility of the cardholder.
In the meantime, you not only acquire the purchasing power of a credit card, but also have the cardholder’s credit history added to yours.
That provides an opportunity to add three positives right away to your credit report: an increase in the number of years using credit, an increase in the average age of credit cards you use, and an increase in the credit utilization available on your cards.
The combination of those three elements alone could raise your credit score anywhere from 50–100 points.
On the other hand, if the cardholder is late with payments, maxes out the card every month or does anything else negative, it will hurt the credit scores of both the cardholder and authorized card user.
And any negative activity you create can impact the cardholder’s credit score. If you max out the card and the cardholder is late with payments or can’t make them, it is a negative on their account — and at some point, on yours too.
If you have a job, another way to start a credit history is to take out a loan, perhaps to buy a used car. Making regular payments will help positively establish your credit history.
7 Benefits of Credit Cards
Credit cards are easy to use. When you use your credit card to make a purchase, the merchant, the credit card company, and the card network coordinate to authorize the payment process. All of this work is done electronically and practically. So, before getting the credit it is important for you to know what are the 7 benefits of credit cards.
Importantly, the greatest benefit of a credit card is that it’s easy to access credit. As we know, credit cards work on a deferred payment basis, which means that you can use your credit card now and you can pay for your expenses later on. The money which you use is not cut from your account, thus it’s not dented from your bank balance every time you swipe.
The facility of EMI
If you are planning on making a big purchase and you don’t want to sink your savings into it then you can choose to put it on a credit card as a way to defer your payment. Additionally, you can also choose to pay off your purchase in equated monthly installments, to ensure you are not paying a lump sum amount for it and denting your bank balance. As we know paying through EMI is much better than taking out a personal loan to pay for a purchase, such as for television or an expensive washing machine.
Building a line of credit.
Credit cards offer you to build up a line of credit. Importantly, it allows banks to view an active credit history that is based on your credit card repayments and usage of credit cards. Banks and other financial institutions often look to the usage of credit cards as a way to gauge a potential loan of an applicant’s creditworthiness, it makes your card important for future loans or other rental applications.
Incentives and offers.
Mostly, every credit card comes packed with incentives and offers to use your credit card. Normally, this comes from cashback to rewards point accumulation every time you swipe your credit card, which can be redeemed later as air miles or you can use it towards paying your outstanding credit card dues. Fortunately, Lenders also offer you discounts on purchases made by a credit card, such as purchases on flight tickets, holidays, or other big purchases, helping you to save.
Your credit card records each expense you made through your credit card, with a proper detailed list sent with your monthly credit card statement. It is used to track and determine your spending and purchases, which is useful when chalking out a budget or for tax purposes. And lenders also provide you instant alerts every time you swipe your card, details of the amount of credit that is still available as well as your current outstanding on your credit card.
Flexible credit is also a benefit of credit cards because credit cards always come with an interest-free period, which is a period of time during which your outstanding credit card is not charged with interest. Normally, it ranges between 45 to 60 days. And you can claim free, and short-term credit if you pay off the entire balance due by your credit card date of payment. Thus, you can also get the benefit of credit advance without having to pay the charges associated with having an outstanding balance on your personal credit card.
Payment protection is another great benefit of credit cards. Credit cards offer protection in the form of insurance for card purchases that may be damaged, lost, or stolen. The statements of a credit card can be used to vouch for the veracity of an avail if you wish to file one. You can get all these 7 benefits of credit cards if you use a credit card. Now, as we know every coin has two sides so there are some cons of credit cards also there. So, let’s discuss the cons of credit cards.
Dis benefits of Credit Cards
There are some disadvantages of credit cards but if you use your credit card in the right way then you don’t face any cons of credit cards for sure. Still, before getting a credit card, knowing the disadvantages of credit cards is important for you. Read long.
The biggest disadvantage for a credit card user is the minimum due amount that is displayed at the top of a billing statement. A number of holders of a credit card are deceived into thinking that the minimum amount is a total due they are obliged to pay, when in fact it is the least amount that the company wants and expects you to pay to continue receiving credit card facilities.
2. The Hidden charges
Credit cards appear simple and straightforward at the outset but they have a number of hidden charges that could reck your expenses overall. Credit cards have a number of tax charges and fees such as late payment fees, renewal fees, joining fees, and processing fees. It also takes a penalty when you mistakenly miss your credit card and your repeated late payments can also result in the reduction of your credit limit. Which can put a negative impact on your credit score and future credit prospects.
Sometimes, we forget the amount we owe in our bank account and spend more and it is known as overuse of credit cards. With revolving your credit card, since your bank balance still stays the same, it might be tempting to put all your spending on your card that makes you unaware of how much you exactly owe. And as a result, you lead to overspending and owing more than you can pay back and it simply begins the cycle of debt and high-interest rates on your future payments.
4. High-interest rate.
High-interest rate is also a super con of credit cards. Somehow, if you do not clear your dues by your billing due date then the amount is carried forward and high interest is charged on it. Credit card interest rates are quite high, with the average rate being 3% per month which means 36% per annul.
5. Credit card fraud.
Though it is not very common, there are chances that you might become a victim of credit card fraud. As we know, With advances in technology, it is possible to clone a credit card and gain access to your confidential information through which any other individual or entity can make purchases on your credit card. So, regularly check your statements carefully for spends that look suspicious and inform the bank immediately if you suspect a credit card fraud. Usually, Banks waive off charges if the credit card fraud is proven, so you will not have to pay for expenses charged by the thief.
How To Use Your Credit Card in the Right way.
A credit card is not a child toy. If you use it properly then it would give you lots of benefits. So, here are a few tips to use a credit card in the right way.
- Read the fine print statement regularly so you’re aware of all the charges and conditions that govern your credit card.
- Don’t spend more than what you can’t payback.
- Try to Avoid putting daily spends on your credit card so that you’re aware of how much you’re spending.
- Periodically check your credit card limit and rein in spending whenever you’ve crossed 40% of your available credit card limit.
- Choose an EMI option for big purchases put on your credit card to avoid having to pay high interest on outstanding credit card amounts.
- Always keep at least 40% of your credit card limit for emergency purposes.
- Plan your purchases well and use your credit card only for planned purchases. Try to Avoid impulse buys on your credit card.
- Always try to pay your credit card bills on time each month to avoid the high-interest charges.
- Never miss a credit card payment, as this will result in higher charges and a huge penalty.
- Contact the bank if you’ve overspent on your credit card. They would help you devise a pay-back plan with a fixed rate of interest to avoid you falling deeper into debt.
Credit cards have lots of benefits. Having a credit card is a good idea. But before getting it do search well about credit cards. I hope you get to know all the knowledge you need about credit cards. Thanks for reading. To build credit score asap just follow all the tips I have mentioned in this article and do not miss the payments. Remember, the most important tip is not to miss payments. A credit score is very important because whenever you need something you immediately get financial support through a credit card and to use your credit card you should give a preference to credit score. I hope that all you need to know is got to you from the above article.
Frequently Asked Questions:
How can I immediately raise my credit score?
4 tips to boost your credit score fast Pay down your revolving credit balances. If you have the funds to pay more than your minimum payment each month, you should do so. ... Increase your credit limit. ... Check your credit report for errors. ... Ask to have negative entries that are paid off removed from your credit report.
How can I raise my credit score by 100 points in 30 days?
Get a copy of your credit report. Identify the negative accounts. Dispute the negative items with the credit bureaus. Dispute Credit Inquiries. Pay down credit card balances. Do not pay your accounts in collections. Have someone add you as an authorized user.
What is the quickest way to build your credit?
The fastest way to build a credit score from scratch is to open a credit card, maintain a credit utilization ratio below 10% and pay it off every month. If you already have a credit card, aim for a credit utilization below 10% and never miss a payment. If you have a loan, like an auto loan or student loan, make payments on time and avoid opening new loans. It will still take several months to build your credit, so follow the steps above and be patient.
How long does it take to build a 700 credit score?
It can take several months to increase your credit score, and even longer if you have bankruptcies, defaults, late payments or liens on your report. The exact time frame to build a 700 credit score depends on the person.