For most people, to think about their credit and attempting to improve it usually is not a good time. But credit is so essential that when in need, let’s say when it is time to buy a house or a car people will wish that they had given it some thinking. Ultimately, having a good credit score can save you thousands of dollars. A credit report tells the story of the financial history, from the number of open and closed credit cards a person has to how they have repaid the debts. Additionally, the information in a credit report comprises a three-digit number that helps lenders decide whether to approve a loan or credit card or not. That is a credit score.
So, here are some questions to ask yourself about credit.
What can I do to start building credit if I do not have any credit history?
A good first step is to get a secured credit card. They guarantee approval for a card like this since it uses a cash security deposit as the basis for your credit limit.
This is how it operates when there is approval for a card, you will be required to put down a security deposit, usually around $300 to $500. That deposit will then become the credit limit. Secured credit cards report to the credit bureaus, which means that you will still be able to build credit without endangering and getting too deep into debt. After proving you are responsible with a secured credit card, many issuers will transfer it to an unsecured card, and extend the credit limit, which may take a year.
How does closing a card affect my credit?
If you only have one credit card, it is likely a poor move: Closing that card could mean there will not be a good mix of credit, which lenders like to see. Also, closing it will exhaust your available credit, which is not good by it being unutilized, accessible credit helps the score. But if you have many credit cards, closing one might not bad decision. It all depends on how high the limit is on the card, and something called the credit card utilization rate is the percent of available credit you are using. If your available credit is $10,000, and you are using $8,000 of it, it could suggest that you depend heavily on credit because you are deficient in cash. It is best to have a credit utilization rate below 30 percent.
As a general rule, the higher the credit utilization rate, the further it might hurt your score to close a card. For example, if your other cards have reached the limit or are close to it, closing a card with a high limit could hurt your credit score, because it could improve the credit utilization rate.
Can having too many cards hurt my credit?
It is not the number of credit cards that you have, but how you use them. You could have many credit cards and still have good credit or you could just have one or two and maintain a good credit score. Just always recall that the more credit cards you have, the more risk you take on of missing a payment. Your credit will gain as long as you keep up with your monthly payment, but you still need to be watchful not to charge items that you cannot settle each month it is an easy road to credit card debt.
If you never had a credit card or take out a loan and pay for anything in your life using a debit card or checking account, or cash, you are not advancing credit. Although there are still ways to have a credit score if you were a permitted user on someone else’s card. Likewise, if you do not have access to banking services, building credit can be difficult. Luckily, there are some methods to build credit even without having a card or taking out a home loan. Savings circles are a way that few low-income and immigrant communities save, and some institutions have started reporting these to credit-reporting bureaus, permitting people to build credit via these formerly informal arrangements.