If you are a regular reader of my blog, you'll know that one of the steps I recommend to rebuilding credit is to use credit cards. It's a smart, easy way to wisely develop good credit history - but emphasis is on "wisely".
Those who struggle with credit shouldn't just run out and get another credit card, hoping that this time it will be better. Using a credit card to help rebuild your credit is only part of a process (you need to do other things as well) and it requires a change in the underlying habits of credit card usage.
Here are some tips to adopt and traps to avoid when using credit cards to help rebuild your credit:
• TIP: It's good to use your credit card regularly to show that you can manage your debt carefully. But "regularly" doesn't mean daily or even weekly. If you take out your credit card once or twice a month, use it to buy dinner at a restaurant or a night out with your spouse at the movies (and then you repay it), that is more than enough to show good credit habits.
• TRAP: Beware of low interest credit cards. Read the fine print carefully. Sometimes the low interest is only on certain purchases or on credit transfers, or only for a limited amount of time, while all other purchases are charged a higher interest rate. Low interest cards are good to have but only if you use the "low interest" aspect of the card in the way it was designed.
• TIP: Visa and MasterCard aren't the only two types of credit cards you can apply for. Many stores offer their own credit card and this is a good way to ensure that you don't use your credit card all over town - but only at the retailer who provided the card.
• TRAP: Some credit cards have high interest already, and some credit cards will increase the interest rate. Try to always pay more than the minimum payment and use whatever reminders are effective for you to ensure that your cards are paid down (or paid off!) as quickly as possible.
• TIP: Make sure you pay back your credit card on time and in full each month. Good credit history is built on on-time payments and good debt management. Therefore, you should use your credit card but only spend what you can pay off each month!
For many people, credit cards are a big reason why credit scores are low. But credit cards can also be a helpful tool to build your credit score through better habits and history. Get a credit card, learn how to use it, and use it wisely.