One of the most common questions I am asked with respect to credit is “what is the best way to establish positive credit?” There are some serious misconceptions in the marketplace and I have heard even some of the most veteran of bankers give some truly appalling advice. Before we dive into the magic of credit cards, let’s address the elephant in the room.
Credit card companies make their money on interest. We all know this. However, what we are not taught is how the credit card companies have the ability to manipulate your credit scores for their own financial gain. If you have a lower credit score, obviously these companies can charge you more interest. This is why it is beyond imperative that you always maintain the take away from today’s blog.
How much a credit card can help you or hinder you is all based upon the utilization of your available credit limit. Anytime you exceed 30% of your credit limit, you are actually losing points and digging your own grave so to speak. If you exceed this threshold and then turn around and pay off your balance when you receive your statement, you will still be left 6 feet under. This is because the credit cards companies are prepared for this and the date they report your balance to the bureaus does not coincide with the date that you receive your statement.
To ensure you are gaining the maximum amount of points with your credit card, my best advice is as follows. Never exceed 30% of your limit and pay your bill every month. You have to use your card and carry a balance, but nothing over 30%. If you subscribe to this school of thought, the amount of positive gains you will see will be well worth the time and energy you invest.