4 Ways Your Credit Card Can Help You Build Credit (For Real)

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For plenty of people — and millennials especially — a credit card is a scary prospect. And we get why: Phenomenal spending power plus itty-bitty charging restrictions equals a major opportunity to go into debt.

But if you’re foregoing credit cards completely, you could be making it harder on yourself when it comes to another important facet of your finances: building a solid credit score. That’s because credit cards are fairly easy to qualify for — there’s actually a whole category of them designed specifically for people who need to build or rebuild. (You can monitor your progress by viewing two of your credit scores for free on Credit.com.)

Plus, while installment loans (think auto loan or mortgage) come with an automatic price tag and, more often than not, automatic interest, you don’t need to take on debt to build credit with a credit card. That’s actually a common misconception, but, trust us, no balance here required.

To help you how to best leverage your plastic, here are four ways a credit card can help you build credit.

1. You’ll Establish a Payment History

And that’s the number one most important factor when it comes to credit scores. Of course, to build good credit, you’ll want to make all of your credit card payments on-time. (One misstep can really cost you and your score.) To avoid any blemishes, set up alerts that reminds you when your due date approaches or even consider setting up auto-payments each month. Just be sure to keep an eye on your statements for any errors or fraudulent charges.

2. Its Limit Can Bolster Your Credit Utilization Rate

That’s how much debt you’re carrying versus your total credit. Experts generally recommend keeping your credit utilization below at least 30% and ideally 10% of your total available limit(s) — which is easier to do when you have a credit card you’re consistently paying off in full.

3. Your Credit Will Start to Age

And that’s a good thing because length of credit history accounts for about 15% of your credit scores. Length of credit history, also referred to as the age of your credit, is essentially how long you’ve had your credit lines. When it comes to building credit in this category, there’s little credit newbies can do, except, you know, wait. But because a credit card represents one of the easier points of entry into the financing world, that plastic in your wallet can help you get started.

4. You Could Be Rewarded for Having a Mix of Accounts

Credit scoring models like to see that you can manage different types of credit. So, if you’ve got an installment loan on your file — like, say, that student loan you took out to pay for college — adding a revolving line of credit, like a credit card or home equity line of credit, could improve your performance in this key credit category. Mix of accounts, or credit mix, accounts for roughly 10% of the points in your credit score.

Of course, there are ways to build credit outside of simply using your own credit card. That includes looking into credit-builder loans at your local bank or credit union or becoming an authorized user on a friend or family member’s credit card. (The account will appear on your credit file and bolster your performance in the aforementioned credit scoring categories, but you won’t be liable for the charges.) And if your credit is kind of shoddy, you can try disputing any errors on your credit report, limiting credit inquiries and addressing accounts in default. You can find a full 11 ways to improve your credit scores here.

Got a credit score question? Ask away in the comments section and one of our experts will try to help!

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The post 4 Ways Your Credit Card Can Help You Build Credit (For Real) appeared first on Credit.com.

Help! I’m a Man-Baby Trying to Fix My Credit

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There comes a time in everyone’s life — sometimes more than once — when you have the sinking realization that you’re an adult and need to get it together. Financially speaking, that can mean getting out of debt, building credit or (gasp) saving a little money for when you retire.

For Nathan McGoey, a 30-year-old from Madison, Wisconsin, this moment came in his late 20s. He had just become a single dad, and for the sake of his son’s future, decided to change his irresponsible habits.

“I knew what I was doing probably wasn’t good, but I didn’t care enough,” McGoey said of his early adulthood. “I was blissfully ignorant when it came to f—— up my credit.”

About two years after he decided to get on top of his finances, McGoey checked his credit, and what he saw upset him.

“My score was, like, 560,” he wrote on Reddit last month. “I also saw I had something in collections that I had no idea about. I paid off that collection, and now my credit score is, like, 585. I want to improve this in the hope of someday getting a house. Because I have no debt, I thought I’d get a credit card and try to rebuild my credit, but surprise, surprise, I got denied for a credit card.”

The Man-Baby Lifestyle

McGoey has a good description for who he was in his 20s: a man-baby. Though he was an adult, he wasn’t managing his money any better than a child would have. It started with a car loan and credit card, which he got when he was 20.

“Within a month and a half, I had that maxed out at the bar having a good time with the boys,” McGoey said. “I just didn’t pay that.”

Then there were his car payments, which he rarely paid on time, even though he had money.

“There were times they would even look for me and try to repo me,” he said.

The credit card debt went into collections, and he made the car payments just often enough to keep his car and stop the calls from creditors.

A Wake-Up Call

When he was ignoring his bills, McGoey often thought to himself, “Who cares if I don’t get credit?” He knew he was messing it up, but it didn’t matter.

But having his son changed that.

“I knew what I was doing to myself was not only harming me but potentially harming him,” McGoey says.

He checked his credit for the first time a few years ago, and it was “atrocious,” he said. He decided to pay off the collection accounts in his report and get out of debt, though he didn’t want to check his credit again. When he checked it a couple of years later, he experienced the same disappointment and confusion many feel when trying to improve their credit. He was out of debt, but his score was still in bad shape.

Playing Credit Catch-Up

Having a bad credit score despite everything he’d done left McGoey with one common question: How can I improve it?

“It’s just one of those things that’s a constant reminder of all of the bad things I’ve done in the past,” he said. To him, having a higher credit score will mean finally leaving behind his self-described man-baby past and truly growing up.

The answer to his question is a frustrating one: Give it time. McGoey paid off the collection account, but that information can stay on a credit report for up to 7 years. He also opened up a credit card, which he plans to use sparingly and pay on time in order to improve his payment history. (Yes, there are credit cards for bad credit — you just need to research ones you may qualify for.)

Besides waiting for his man-baby past to age off his credit report, there are a few other things he could do. While it’s generally not a good idea to go into debt just for the purpose of improving your credit, having a mix of credit accounts (revolving accounts and installment loans, like a credit card and an auto loan) can help, as these show you can responsibly manage multiple kinds of credit.

You could also try to negotiate with creditors or debt collectors to have negative information removed from your credit report, particularly if it’s unfairly hurting your credit. (For example, if a single debt is sold and re-sold to different collection agencies, it can show up on your credit reports several times, worsening your score.) You can take these steps on your own or hire an expert to help.

Patience Is Key

Above all, McGoey and others working toward good credit need to be patient. It takes time to improve your credit score, and the best things you can do are make payments on time and keep debt levels low. A low credit utilization is probably one of the quickest credit-score fixes. (A good rule of thumb is to keep your credit card balances at ideally less than 10% of your combined credit limit.)

Whether you’re trying to boost your credit or maintain a good score, it’s important to regularly check your annual credit reports. Errors can damage your credit (and can take a while to fix), as can fraud, and you’ll only know of them if you monitor your credit. You can get a free credit report summary every 30 days on Credit.com to stay on top of your credit history.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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You’re Not Stuck With Bad Credit Forever, Study Finds

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Your credit score isn’t like your family; you aren’t stuck with it forever. In fact, credit scores are quite fluid, as a recent study from VantageScore Solutions shows.

The study looked at the credit scores of 2 million consumers between 2011 and 2013, reporting that 49% of these consumers saw a credit score increase of around 19 points during a 3-month period. During the same time frame, only 30% saw a decrease, averaging 24 points, while the rest of the people in the study (21%) had scores that remained level. VantageScore Solutions also looked at the score changes during a 12-month period, finding 51% of consumers had an average score increase of 27 points and a mere 11% had scores that stayed the same.

During the study, 53% of consumers had a positive uptick in their score, with an average of more than 40 points during 12 months. That being said, the odds are that your score will change this year. And whether these changes are for the better or not can depend on the financial choices you make.

How to Better Your Credit Score

Your credit score is in your hands, in a sense. The choices you make and spending habits you have influence it. But to know how your past behaviors are playing a role, as well as if you have any habits now that you need to break, you first need to check your credit. You can get free annual credit reports from each of the major credit reporting agencies, and you can get two of your credit scores for free each month on Credit.com to see where you stand.

If you need to do something to fix your credit score, here are the next steps. First, you need to figure out why you have a bad credit score and address the issue. If your credit is suffering because you habitually make late payments, change your habits and start paying earlier or set up account alerts to remind you to make a payment. If you’ve checked your credit reports and think your credit is suffering because you’ve become a victim of identity theft, reach out to the credit bureaus to dispute any accounts that aren’t yours and contact the authorities.

Finally, take steps to improve your credit. This can include everything from opening a secured credit card to help build up your score or contacting a credit repair agency for help (here are some tips for picking a good one). You won’t necessarily improve your credit 19 points in three months like the study showed, but with the right tools and motivation, you can turn things around.

[Offer: If you’re worried about errors on your credit reports, and you don’t want to go it alone, you can hire companies – like our partner Lexington Law – to manage the credit repair process for you. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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