Having no credit history can be an obstacle when you’re trying to obtain a loan. It may be tough to get a loan, or credit card or find a place to live. You can start building a credit history by opening a basic credit card and using it responsibly. A credit card is a valuable financial tool for building your credit history. Good credit history is important for several reasons such as obtaining a loan, renting an apartment, or even landing a job. If you are just starting out and don’t have any credit history, using a credit card is a great way to build up your credit score. Here, we will discuss how to use a credit card to build your credit history and what to watch out for.
Get a Secured Credit Card:
A way to start building credit is by using a secured credit card. This requires making a cash deposit that becomes your line of credit limit with a bank or financial institution; you use the money from the deposit when making purchases. You won’t need to use a secured credit card forever. These cards are designed for people who have no credit history or need to rebuild their credit. A secured card is for people who want to improve their credit enough to qualify for an unsecured card, which has better benefits and no security deposit. As a student, you can also get a student credit card to build good credit.
Pay Your Bills on Time:
Credit cards help you build your credit history, and many come with additional bonuses like rewards points. They can be a great asset in managing your finances day-to-day. It is important to pay your bills on time in order to build a good credit history. Late payments will damage your credit score and will reflect negatively on your credit report. It’s crucial not to miss payments, as that can damage your credit score.
To avoid ever inadvertently missing a payment, set up autopay for your account. Via autopay, you can remit the minimum required amount; any leftover balance owing can then be paid off separately (and in full, if possible).
Use the Card to Make Purchases:
Once you get your credit card, use it to make purchases and pay the balance in full each month. Doing so shows that you can handle using a line of credit responsibly and in turn, helps build your credit history. When making purchases with a credit card, keep track of how much you are spending and stay within your budget. Don’t be tempted to spend more than you can afford. Credit cards offer more protection against fraud than debit cards, and some best credit card companies even offer additional benefits like travel insurance or purchase protection. These extras are not included when you pay with cash or use a debit card.
Check Your Credit Report Periodically:
It’s wise to check your credit report every few months to make sure all the information is accurate and up-to-date. Check for any errors or inaccuracies that could be having a negative impact on your credit score. If there are any discrepancies, contact the credit bureaus to rectify the situation. This is important because it ensures that your credit report accurately reflects your payment history and other vital financial information.
Don’t Apply for Credits Continuously:
Whenever you apply for a new credit card or loan, an inquiry is placed on your credit report. This temporarily lowers your score by a few points. Too many inquiries can make a lender or creditor think you are desperate for credit, so proceed with caution. You don’t want to risk hurting your credit score by trying to open too many accounts at once. So, if you think you need more credit, wait until you have established a good payment history with your current credit card before applying for a new one.
Check your Credit Scores and Reports:
Credit reports show your credit history, while credit scores predict your future credit usage, both of which are important to monitor. Errors can appear on either one, so it is essential to keep an eye on both report and the score. Additionally, you can use these tools to track your progress as you work to build or improve your credit.
There are five details listed on your credit report, each with a different level of importance to lenders and influence on your score. Your score is calculated as a three-digit number between 300 and 850. These five are:
- Payment History
- Balances owed
- Credit mix
- Age of credit history
- Recent Activity
Using a credit card wisely can help you build a strong credit history over time. It’s an easy way for beginners to start building their credit without taking on too much risk. With careful monitoring and responsible use, you can have a healthy credit score that qualifies you for the best terms on loans, mortgages, and other types of credit.
For more information and tips to help you choose the best credit card in NZ, visit our website Credit Cards Compare.
