How to Use Your Wanderlust to Build Credit

Love to travel? Good news: There are ways to put that wanderlust to use with a travel rewards credit card.

Though travel rewards cards aren’t the easiest to get approved for as they require an excellent or good credit score, those who are able to snag one can use it to build better credit. (Just, remember, before you apply, it’s important to know where you stand so you don’t get turned down and have your score suffer as a result of the inquiry.)

Travel Rewards Cards & Credit

A travel rewards credit card lets accountholders earn points or miles that can be put towards hotel stays, airfare and other travel expenses. These rewards can help world travelers lower the cost of their vacations, but the card itself could be a good instrument for building credit.

If you make all of your payments on time, eventually your score will begin to rise because this behavior creates a positive payment history, the most important factor among credit scoring models. The card’s credit limit will also be counted towards your credit utilization rate, another major factor among credit scores. Your credit utilization rate is essentially how much debt you are carrying versus your total available credit. For best credit scoring results, it’s generally recommended to keep the amount of debt you owe below ideally 10% and at least 30% of your credit limit(s). So, if you charge your vacation and then pay most or, even better, all of those purchases off right away, your score could benefit.

While using your card, you can keep track of how your usage and payments are affecting your credit by signing up for Credit.com’s free credit report summary. Beyond seeing your credit scores, you’ll be able to check how you’re doing in five key areas of your credit report that determine your credit score, including payment history, debt usage, inquiries, credit age and account mix.

Since interest rates for travel rewards cards tend to vary depending on creditworthiness, you’ll want to be mindful about carrying a balance. Doing so could hamper your credit goals, and the interest you pay could exceed whatever you’ve managed to glean from rewards. Many travel rewards cards carry annual fees, too, so you’ll want to make sure your spending habits justify that potential cost. (You can read about the best travel credit cards in America here.) Of course, making purchases on your card and paying them off quickly (and on time) will generally boost your credit.

Remember, too, if your credit is looking a little lackluster and you’re having a hard time qualifying for any type of credit card, you may be able to improve your scores by disputing errors on your credit report, paying down high credit card balances and limiting new credit inquiries until your score rebounds.

[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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How to Use Your Shopping Addiction to Build Credit

shopping-addiction-store-credit-card

If you love to shop, it’s possible to use your fashion sense to help improve your financial sense by building, or even rebuilding, your credit. Here’s how.

Store-branded credit cards are some of the easiest cards to qualify for and are often extended to those who even have bad credit because they have lower criteria than traditional credit cards. Using them, especially if you’re loyal to a particular store and shop there all the time, can bring card rewards, discounts and, if you pay your card off every month, better credit.

Immediate Savings

In most cases, when you apply for a card, the retailer will offer you a discount on that day’s purchases. Sometimes the new account discount will be extended for purchases made within a short time period (24 hours, for example), as an incentive to get you to spend more. The risk here is that instead of saving money, you end up spending more than you had planned, so it’s good to be wary.

Watch Your Credit Scores

When you open your new credit card, you may see a dip in your credit scores for two reasons: One is the inquiry that is created when the issuer checks your credit score. This inquiry may cause your scores to drop, though usually not more than a few points. In addition, a new account with a balance is often seen as a risk factor. But as long as you pay on time and keep your balances below 30% of your credit line, ideally 10%, you could eventually see a slight rise because you’ll have a positive new credit reference which can prove beneficial if you are trying to build or rebuild credit.

As you use your new card, you can track how your usage and payments are affecting your credit by signing up for Credit.com’s free credit report summary. In addition to getting two free credit scores, you’ll get your very own credit report card that tells you how you’re doing in the five key areas that are included on your credit report and determine your credit score – payment history, debt usage, credit age, account mix and inquiries.

Be Aware of the APR

Interest rates for department store credit cards are almost always on the high side, often 19% – 22% or more. If you carry a balance, the interest you pay will likely exceed the amount you saved with the discount. This means carrying a balance could hamper your goals, especially if you fail to make on-time payments.

Given store credit cards’ high APRs, you won’t want to go on a shopping spree with them, nor will you want to put more purchases on the card than your budget can handle. (For tips on cutting back without feeling deprived, you can go here.)

That said, making a couple of small purchases a month, say, on home essentials or groceries, and paying them off quickly (and on time) will likely beef up your credit.

Before You Apply 

Before you fill out an application, you’ll want to know where your credit stands so you have a good sense of what APR you might qualify for. Knowing your score will also inform your decision to apply for a card in general, as inquiries on your credit report can cause your score to take an unnecessary hit.

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