Credit Cards and Responsibility
How to use a credit card to build a positive credit history
September 19, 2013 by Jake Butler
For service members and civilians alike, credit history and financial responsibility are a big part of life. Bad credit can make it difficult to get a home or car loan and it can even keep you from getting a job if a prospective employer does a credit check.
So what can you do to build or improve your credit history? The best way is to borrow responsibly. That means taking out a reasonable line of credit, paying your bill on time and keeping your balance low.
It takes time and consistency but it's never too late to get on the right track. Read on to learn how to handle a credit card responsibly and what you can do to sculpt a positive credit history.
Get a Starting Baseline
In order to track your progress, first you need to get a copy of your credit report to see where you're starting. You can request one free report per year at annualcreditreport.com.
Watch out for other sites that try to make you sign up for their services in order to get a copy of your report. You shouldn't have to pay for it.
If you're not sure what to look for, check out our recent guide to understanding your credit report.
Secured Credit Cards
If you have no credit or bad credit, you might not even be eligible for a regular credit card. You're still free to apply for one, but if you get turned down, you should consider getting a secured credit card from your bank or local credit union. Check with the bank to make sure they report back to the credit bureaus.
A secured credit card is really more like a debit card. You deposit a certain amount of money into an account and you're free to use it just like you would use cash. Spend it carefully and responsibly on things you truly need.
Although it does require an initial investment, both you and the bank take on very little risk and this helps you gradually build up a positive credit history.
I'm sure you've seen commercials on TV from stores offering 0% interest on items paid off in their entirety within a given timeframe. If it's something you and your family actually need like a bed, a couch or a computer, opening an account is a great opportunity to build credit.
The absolute most important thing is that you stay on track with your payments and get your loan all paid off before the end of the term. If you don't, they'll charge you a high interest rate for the entire cost of the purchase and your credit score could take yet another hit.
Credit Card Dos and Don'ts
Once you've proven you're able to handle a line of credit responsibly, you may be qualified for a regular credit card. So how do you pick the right one?
The last time I was looking for a new credit card, I used Google's comparison tool, which conveniently displays the interest rates, rewards, special advantages, fees and penalties of each card. It's a great way to compare the pros and cons of each offer.
So whether you want a card with the lowest interest rate possible, rewards on stuff like gas and groceries or you just want to avoid fees, picking a card is the easy part. Once you've got it, building credit is all about using it responsibly. Here are some of the most important dos and don'ts:
- Rack up debt you can't pay off. Getting in over your head and carrying a big balance can end up hurting your credit score in the long run.
- Miss payments or pay late. Credit bureaus will view this as irresponsible borrowing.
- Buy things you don't need.
- Keep a low balance. Ideally you should only buy what you can afford to pay off in full every month.
- Your best to pay on time, every time.
- Avoid the pitfalls.
Once you've established a credit history, lots of companies are going to send you offers. Banks, retail stores and credit card companies are much more eager to loan money to good borrowers, but that doesn't mean you should accept every offer that comes your way. Only borrow money for things you need and can't possibly finance otherwise.
It may seem like an uphill battle, and sometimes it can be daunting. But with a little perseverance and consistency, using a credit card responsibly is a great way to build a positive credit history.