Credit cards
How to use credit cards: useful tips
If you want to open a full credit card instead of a secured one, you should check here. It will help you understand the process of opening one.
When you already have a credit card, the question arises how to use it properly, when to top up and how to improve your credit rating.
It's important to activate the card on the bank's app and pay attention to key dates:
The Payment Due Date is not that important. It is the date by which you need to make the minimum payment if you have outstanding debts and have not recharged the card on time. The amount required to be paid is shown below.
Our job is to prevent you from having debt on your card by the next closing date.
It is on this date that the bank checks your card balance and sends the data to the credit bureau.
Therefore, the most important thing for us is that there is no debt on the card by that date.
In other words, you can do whatever you want with your card until that date: spend, top up again and again. The main thing is to close your debt by the specified date. You should take into account that it may take 1-2 days for the funds to arrive.
Your monthly spending reports are not sent to the credit bureaus. They don't know if you spent just $2 dollars or $2000.
Is it necessary to aim for a 30% debt ratio? No!
There are 5 thresholds for credit card debt:
Let's assume your credit card limit is $1000. Thus, your card debt should not exceed $90 by the closing date. Whether it is $0, $55 or $90, you will still fall into the "excellent" category. However, it is recommended that you close your card "at zero" for ease of monitoring.
You should follow these rules from month to month. If for some reason you move from one category to another, such as from "excellent" to "good", even if your debt is only $110, your score will drop significantly (by 8-10 points). Conversely, when you reduce your debt and move into a better category, your score goes up.
What other factors affect credit score?
There are a total of 6 factors, 3 of which strongly affect the score and 3 of which slightly affect the score.
1. Payment History. The key is to make payments on time if you have borrowed anything or have credit card debt.
2. limit utilization. We've talked about this before. Try to remember that when you have multiple credit cards, it's the total amount owed that matters, not the amount on each card individually. However, it's harder to keep track because each bank sends data to the credit bureau at different times. As a reminder, the ideal debt is between 0% and 9%.
What happens if you don't use your credit card?
Your credit score will go up! And very quickly, too. In six months, you can reach a score of about 730 without using a credit card at all. After a year, the rating will reach 750.
However, this is not enough to get a great credit in the future. Because, apart from the rating, other factors are also taken into account.
3. Penalties - none.
4. Age of credit history. The older the history, the better. However, there is one BUT. Every time you open a new credit card or take out a new loan, the age decreases because the total age of all your accounts is taken into account.
So if you had one credit card for a year and then opened a second one, you would have 2 cards, one with an age of 12 months and the other with an age of 0 months. The combined age will drop to 6 months. And this is the case every time you open a new card.
So it's very important not to close your first card, even if you don't use it.
If you want to open a full credit card instead of a secured one, you should check here. It will help you understand the process of opening one.
When you already have a credit card, the question arises how to use it properly, when to top up and how to improve your credit rating.
It's important to activate the card on the bank's app and pay attention to key dates:
- Payment Due Date (Payment Due Date)
- Next Closing Date
The Payment Due Date is not that important. It is the date by which you need to make the minimum payment if you have outstanding debts and have not recharged the card on time. The amount required to be paid is shown below.
Our job is to prevent you from having debt on your card by the next closing date.
It is on this date that the bank checks your card balance and sends the data to the credit bureau.
Therefore, the most important thing for us is that there is no debt on the card by that date.
In other words, you can do whatever you want with your card until that date: spend, top up again and again. The main thing is to close your debt by the specified date. You should take into account that it may take 1-2 days for the funds to arrive.
Your monthly spending reports are not sent to the credit bureaus. They don't know if you spent just $2 dollars or $2000.
Is it necessary to aim for a 30% debt ratio? No!
There are 5 thresholds for credit card debt:
- >75% - terrible
- 50%-74% - very bad
- 30%-49% - bad
- 10-29% - good
- 0-9% - excellent
Let's assume your credit card limit is $1000. Thus, your card debt should not exceed $90 by the closing date. Whether it is $0, $55 or $90, you will still fall into the "excellent" category. However, it is recommended that you close your card "at zero" for ease of monitoring.
You should follow these rules from month to month. If for some reason you move from one category to another, such as from "excellent" to "good", even if your debt is only $110, your score will drop significantly (by 8-10 points). Conversely, when you reduce your debt and move into a better category, your score goes up.
What other factors affect credit score?
There are a total of 6 factors, 3 of which strongly affect the score and 3 of which slightly affect the score.
- Payment history (strong influence).
- Credit card limit utilization (strong influence).
- Collections (strong influence).
- Age of credit history and loans (weak impact).
- Total number of credit cards and loans (good score >10) (weak impact).
- Number of applications in the last 2 years (each application lowers your score) (weak impact).
1. Payment History. The key is to make payments on time if you have borrowed anything or have credit card debt.
2. limit utilization. We've talked about this before. Try to remember that when you have multiple credit cards, it's the total amount owed that matters, not the amount on each card individually. However, it's harder to keep track because each bank sends data to the credit bureau at different times. As a reminder, the ideal debt is between 0% and 9%.
What happens if you don't use your credit card?
Your credit score will go up! And very quickly, too. In six months, you can reach a score of about 730 without using a credit card at all. After a year, the rating will reach 750.
However, this is not enough to get a great credit in the future. Because, apart from the rating, other factors are also taken into account.
3. Penalties - none.
4. Age of credit history. The older the history, the better. However, there is one BUT. Every time you open a new credit card or take out a new loan, the age decreases because the total age of all your accounts is taken into account.
So if you had one credit card for a year and then opened a second one, you would have 2 cards, one with an age of 12 months and the other with an age of 0 months. The combined age will drop to 6 months. And this is the case every time you open a new card.
So it's very important not to close your first card, even if you don't use it.