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Credit Cards & Credit Scores 101
Credit cards can get a bad rap, but did you know that they are considered the #1 tool for building credit and boosting your credit score? It’s simply all how you use them. In the financial world, your credit score can open doors or shut them, depending on your magic number. If it’s not quite as high as you’d like, learn how a credit card may help!
The Power of Paying on Time
Paying off your credit card on time every month may seem obvious but not everyone understands just how important it is. Did you know: 35% of your credit score comes from payment history. Timely payments build credit and boost your credit score.
Life happens and sometimes you miss a payment or can’t pay in full. The best way to recover from this is to pay it off as soon as you can. The later you are, the worse it can hurt your credit score. Plus, credit card debt can add up faster than you think due to some cards’ high interest rates.
The lesson here: Only spend what you know you’ll have in order to pay off your credit card each month. Then watch those payments boost your credit score into higher territory!
Credit Utilization Ratio
This may seem like a scary combination of words, but your credit utilization ratio is actually pretty simple! Here’s an example for you: If you have a $5,000 line of credit on your credit card and you spend $5,000 with it every month, your credit utilization ratio is 100%. Of course, maxing out your credit card isn’t really recommended. Ideally, you want to stay beneath 30% of your credit maximum. So, in this example, you wouldn’t want to spend over $1,500 with your credit card each month (this is 30% of $5,000).
In a perfect world, some experts say it’s actually best to stay under 10% of your credit limit. Those with the highest credit scores often cite a low credit utilization ratio. Find what works best for you but keep 30% in mind if your goal is to improve your credit score.
Ready to Use a Credit Card to Help Your Credit Score?
Starting to improve your credit score can be as simple as the steps outlined above. Get a credit card, pay it off on-time, and keep your spending under 30% of your credit limit – you got this!
Ready to explore credit card options? The Community Choice Smart Card is a great starter card for building credit; the UNLimited Cash Card offers you just that in cash back rewards with 1.5% back on everything; and our Priority Plus Card is your go-to travel buddy with 3x points on travel purchases and more.
Equal Opportunity
Community Choice Credit Union does not discriminate in employment opportunities or practices because of age, race, color, religion, sex, sexual orientation, gender identity, gender expression, pregnancy, marital status, domestic partner status, military status, veteran status, national origin, disability, genetic information, or any other status protected by applicable federal, state, or local law.