Can You Use a Credit Card to Improve Your Credit Score in 2021?
TORONTO, April 7, 2021 (Newswire.com) - Have you made it a goal to improve your credit in 2021? Using a credit card wisely can actually help you improve your credit score. The type of card you use and how you use it can make 2021 your year for good credit habits. If your credit score is fair or poor, there's hope for making it better. Keep reading to find out how.
5 ways to improve your credit score in 2021
1. Secured credit cards
If you're starting from a poor credit history or not much credit history at all, a secured credit card is one way to start improving your credit score.
Secured credit cards are cards that require you to put a deposit down to use them. The deposit amount is usually equal to your credit limit. If you put down a $500 deposit, you'll be able to charge up to $500 to your card.
These cards aren't likely to have the best Canadian credit card rewards, but they're great if you would have difficulty getting approved for a regular credit card. Because you're putting down collateral, you're less of a risk to borrowers. If you can't pay your balance, they'll simply take your deposit. Be sure to choose a card that reports your activity to credit bureaus, or your hard work won't improve your credit score.
2. Becoming an authorized user
Becoming an authorized user on an existing credit card is another way you can use cards to improve your score.
Becoming an authorized user means that the primary cardholder is allowing you to use their credit account. You'll receive your own card with your name on it, but the account holder takes responsibility for your spending. If you don't pay your balance, it's their responsibility.
However, because you're added to the account and it gets reported to the main credit bureaus, on-time payments by you and the primary cardholder can help you improve your credit.
3. Set up automatic billing
Have you ever missed or been late on a credit card payment due to simply forgetting about it? Setting your card up for automatic billing can help you keep your payments on track. Your payment history makes up 35% of your credit score, so consistently paying on time will set you up for credit score success.
4. Pay your balance in full
Paying your monthly balance in full can help you both save money in interest and improve your credit utilization ratio. Your credit utilization ratio is a comparison of your available credit versus the amount you're using. Anything below 30% is considered good. By paying your balance off, you'll free up more available credit, thus lowering your ratio.
5. Add to your credit mix
Lenders like to see a mix of credit accounts to prove that you can handle different types of credit. Using a new credit card responsibly can help raise your credit score since it's another type of revolving credit. However, you should never apply to too many cards in a short period of time, as it can make you appear risky to lenders.
Source: iQuanti, Inc.
Categories: Personal and Family Finances