A credit score is the mark of respectability in the money market because it determines your borrowing power by considering your trustworthiness. Everyone wants to maintain a decent credit score that allows them to borrow money to fulfill their desires of decent living. The most known method of building a good credit score is to borrow money and then repay it on time. Gone are the days when people used to believe that the happiest person is one who does not have any debts. In today’s context, the happiest person is the one who knows how to live with debts intelligently by using it for building a good credit score. If you do not borrow money to maintain a clean slate, then you will never to able to create any credit score. Therefore you should know how to live on credit cards without hurting the prospects of future borrowing.
The importance of credit score
The credit score is not only a reflection of the creditworthiness of individuals but has a broader social ramification. People with good credit score are more confident in handling personal finances and able to bolster it for enjoying a better quality of life. They move up the social ladder due to their sound financial abilities. When people have a good credit score, they have easy and quick access to credits that help to leverage their buying power and create assets and add more wealth. Credit card companies are ready to extend higher credit limits to people with a good credit score as they are reliable borrowers who make payments on time.
Some employers also refer to credit scores when hiring people as it demonstrates the character trait of people about how much responsible they are towards life. A person who is responsible will not only handle personal credits efficiently for achieving good credit score but will also demonstrate the same kind of responsibility in the work assigned to them.
Building the credit score
Credit cards are not only the easiest way to access credit lines but also for building credit score right from scratch. Start using credit cards and create your credit history that remains on record throughout your life. Once you start using the card, it marks the beginning of writing your credit history that duly records all payments made and transactions undertaken. Timely payment for the full amount is the requirement to earn favorable credit score. So, if credit score building is your objective, you have to focus on making payments on time and not to carry over balances.
On the other hand, if you prefer to make minimum payments only, it only finds mention in the credit history but does not have any impact on the credit score. It is okay that you are not a defaulter and the credit card company has nothing to say against you, but you have failed to improve your credit score which is your objective.
What affects credit score?
As you can understand from the above, non-payments, late payments and partial payments or minimum payments all affect the credit score adversely. Despite your best intentions to maintain a clean credit history, you could likely face situations that result in faltering with credit card payments. That does not mean that you have bad intentions but only that you are a victim of circumstances. Either you did not plan well for the expenses or the situation was entirely beyond your control.
Scope for improving credit score
While you must try to maintain good credit score, you should not worry if it is below the mark because there are opportunities for people with poor credit to improve their credit score by availing a second chance credit card.
People with not so good credit scores often face the problem of credit card companies refusing to issue credit cards to them. Even if you had met some credit card problems earlier, then also credit card companies may refuse to issue a fresh credit card to you. However, this does not mean that people with poor credit scores cannot use credit cards to improve credit scores. They can avail legacy credit cards or secured credit cards to earn the confidence of credit card companies and recover from poor credit scores.
Legacy credit cards
To give a second chance to people with poor credit score and help them to rebuild it and re-organize their finances, some credit card companies offer legacy credit cards. The credit card is special because it does not require any deposits and does not have a fixed limit of credit but it keeps increasing according to the payment record of the card owner. The flexibility in setting a credit limit isan encouragement to consumers because the better is the record of making timely payments higher will be the credit line. The company charges annual fees and other charges payable against the first bill even before making any purchase, and after that, it is payable every year. If you want to improve your credit score and the credit limit too, you have to make timely payments and settle credit card bills in full.
Secured credit cards
For issuing credit cards to people with poor credit score, credit card companies issue securedcredit cards by asking them to deposit some money as a security deposit that can take care of any unpaid amount in future. The deposit is equivalent to the credit limit so that the credit card company remains wholly protected from losses. This option is useful for people seeking a second chance to rebuild their credit score, and since they will be making a deposit, they could not care less to make payments on time. The in-built motivator in the arrangement for making timely payments helps people to regain and improve their credit scores. Once you can build proper credit and earn the confidence of the credit card company you could qualify for an unsecured credit card and recover the deposit paid.
No matter which type of credit card you may use, spending according to your payment ability helps in making timely payments that improve credit score.