Using a credit card wisely is a big part of getting a good credit score. When you get a new card offer in the mail, pay close attention if you're trying to rebuild your credit or if you're young and just starting out. When you want to build a good credit history for yourself, it makes sense to use the right credit card. A simple and reliable way to build a good credit report is to buy small things and pay for them on time every month.
How to Check a Credit Card Application
If you get a credit card application that looks like it has a low monthly interest rate, don't decide anything until you flip it over and read the Disclosure Box carefully. In it, you'll find the Annual Percentage Rate, or APR, which is a more important way to measure credit terms. By law, the Disclosure Box will also tell you if the card has a grace period. This is the number of days, usually 25, before your purchase starts to cost you interest. If a credit card has a reasonable grace period and you pay off your balance at the end of each billing cycle, you won't have to pay finance charges. It's not hard to find credit cards with grace periods, so if the Disclosure Box doesn't say so, you should throw away the application and look for a better deal.
If you have no credit history, a credit card company won't want to give you a very high credit limit, but that's probably best when you're just starting out. You don't want your first credit card to tempt you to get into a lot of debt.
Figure out how much your monthly payments will be.
You should pay off your balance every month to avoid interest charges, but if that's not possible, it's important to know how much the things you buy really cost. When you divide the annual percentage rate by 12 months, you get the periodic rate that will be used to calculate your monthly balance. You can get an idea of how much your monthly finance charge will be by multiplying the periodic rate by the amount still owed. It might sound hard at first, but if you take the time to learn this simple equation, it will change the way you use your credit card in a big way.
When you can see how much you spend on something you don't pay off at the end of the month, you might be less likely to use your card too much. The item you want to buy might be on sale when you buy it, but if you don't pay off your balance at the end of the month, finance charges can make the total amount you pay go up by a lot.
Make use of your credit card.
You can build a good credit history in many ways. Credit cards are just one of them. It's also important to pay on time for things like rent and utilities, which are also forms of credit. Depending on your situation, your credit score will be better enough in 1–2 years that you won't need to use your card for new purchases to keep it that way. If you use these tools well, they can help you build your finances for the future.
