Having a good credit score means you are more likely to be accepted for credit and more likely to get the best rates and terms available in the market. There are many ways that you can you build or improve your credit score and one way to do this is by getting a credit card and start using it responsibly.
A credit card is an effective way to build or rebuild your credit. Used properly a credit card can help you build your credit score without you having to carry debt.
What to do if you have no credit history at all?
There are some simple ways to build up your credit history, such as registering on the electoral register to create an official record of your address.
Getting the right credit card is essential for anyone who is new to the lending market. A credit history can take many months and even years to build up and by using a credit card responsibly you can start to build your credit profile.
Building a credit history will stop you having what is known as a thin file, and someone with a thin file is likely to have a low credit score.
Credit cards for people with low credit
Credit cards are available to people with a low credit score but these products often have high-interest rates and limited terms. There are some cards specifically designed for people with a low credit history, these may require a deposit payment or a guarantor, but are a great way for someone to start to repair a low credit history.
Another option is to consider using a prepaid credit card. This gives you the chance to handle your money responsibly and can show that you are ready to apply for a credit card with a line of credit after a few months.
If you apply for a credit card but don’t use it with care, late or missed payments will damage any rating you are trying to develop and it's all too easy to end up impairing your credit instead if you don't get it right.
Credit cards for students
There are card providers specifically targeting student borrowers, they have lower credit limits but more relaxed credit terms. These lenders understand students have limited financial experience and so have designed the accounts to fit those just starting to use credit. These credit card offers are often used by banks to get the business from graduates knowing that the individual is likely to stay with the provider for many other products.
Credit cards by secured savings account
You can also get a credit card secured by a savings account. The credit line usually matches the amount in a savings account. Interest is charged and there are minimal monthly payments just like a regular credit card but your payment history will be reported to the credit agencies, enabling you to build a credit profile.
5 tips to help you build your credit score with a credit card
If you are accepted for a credit card and want to improve your credit score make sure you:
Pay on time and in full
Only charge payments to the card that you know you can clear in full and on time the following month. This means that you will improve your score because your payment history comprises around 35 percent of the total credit score . Lenders prefer customers who can manage their existing debt and credit card and previous credit behaviour are used to forecast future behaviour.
Paying your bills on time is likely to give you a good credit score because your credit score measures how you manage debt, borrowing money and repaying it will improve your score quickly.
Keep your credit limit low
Your total indebtedness plays a big part in determining whether new lenders will offer you products. How much you use your credit cards compared to the credit limit available shows lenders you can manage credit well and they are more likely to offer you new products.
The higher your balance goes the more likely it is that you will overextend your debt and may miss payments. Keeping your credit card balance relatively low can provide a significant boost to your credit. Aim for 30 percent or lower of your total credit limit. To keep your utilisation low, consider paying twice a month rather than waiting for your statement to come to clear the balance.
Limit the number of cards and applications you have
Customers with frequent and multiple credit applications may be overburdened with too much debt and might struggle with any further credit. Credit applications create searches from lenders. These searches are known as hard searches and too many could indicate you may have a financial crisis and therefore a greater lending risk for the provider.
The impact of hard inquiries on your credit score diminishes with time and disappears altogether after 12 months. Borrowing responsibly will reduce the impact of many hard searches negatively impacting your credit file.
Keep your accounts open as long as possible
Having a long credit history will a provider helps your credit score. The longer you use credit, the more predictable and now you are to lenders. Try to keep all of your accounts active and open. Every time you open a new credit account or close an old one, it lowers the average age of your accounts, which can hurt your credit score. The length of your credit history accounts for around 15 percent of your total credit score.
Research and review your options before applying for any new card
Hard searches will impact your credit file and lower your credit score. By fully understanding the lending market, the products on offer and the card you are most likely to be accepted for will minimise the number of declines and hard searched on your report. Those types of cards with free offers and benefits will often be the most expensive. Make sure you shop around for the one that best suits your personal spending habits.
Any type of credit can be mismanaged; if you do not believe you can handle a credit card properly you could end up in financial difficulties. If you suspect that you may not be responsible using a credit card, it is best not to apply for one. If you’re looking for help to manage your credit profile, Credit Angel provides you with an easy and accessible way to see all of the relevant information.