BMI Federal Credit Union
The Benefits of Using a Credit Card
How Using a Credit Card Can Improve or Establish a Credit Score.
The Correlation Between Credit Cards and Credit Scores
A credit card in your name can be a way to build your credit history and improve your credit score. Having a good credit score can help with many areas of your finances and impacts the interest rates you are offered on auto, home, credit cards and other loans. Your credit score can also influence your insurance costs, whether or not you get approved for a lease, hiring decisions by a potential employer, and more. Here are three things to consider before getting a credit card:
Are You Ready?
Established and well-maintained checking account habits are a sign that
you are ready to manage a credit card. Managing a checking account well
includes keeping close track of transactions, being careful to avoid
overspending, not overdrawing your account, and knowing what to do if you
lose your debit card or notice suspicious activity
Finding The Right Card
Look for a national branded card (such as a Visa®) that offers no annual
fee, a fair interest rate, and great customer service. A good place to start
can be at the financial institution where you have your checking account.
Remember that a credit card is a type of loan. Compare cards carefully to
get one that best meets your needs. Understand the billing period, credit
limit, interest rate, payment due date, how the minimum payment will be
calculated, and any potential fees or costs.
If you are not eligible for a regular credit card due to having no credit
history or a history that needs improvement, look into getting a secured
credit card. This type of card requires you to deposit funds into a savings
account that will match the limit available on the card.
How To Use It
Think of your card primarily as a tool to help build and improve your credit
score. Use your card to pay for a recurring monthly expense that is
important to you and already in your budget, such as a streaming service or
your cell phone bill.
Wait for the monthly billing period to end and pay your card in full by the
due date. Doing so will avoid any interest charges or late fees, and will be
establishing that you are a responsible user of credit. If you cannot pay the
card in full every month, do your best to stay under 30% of your limit at all
times and submit at least your minimum payment by your due date.
Store the card in a safe place, you do not need to have it in your wallet!
This can help with avoiding temptation and over spending.
- Having a credit card can be a useful financial tool. Watch our short video on how
to use your credit card carefully and avoid the pitfalls that can get you in trouble.
Then, read our article on credit cards to learn what types of cards are available
and how to choose the one that is right for you.
- The Consumer Financial Protection Bureau provides additional information on
how credit card issuers calculate your interest rate and the difference between a
variable and fixed APR.
- Credit Scores are used by lenders to determine the risk in loaning money to a
consumer and their likelihood to pay it back. Credit Scores are also commonly
used by car insurance companies, landlords, and even potential employers to
determine the risk of working with an individual. Explore our learning module on
Credit Scores and Reports to better understand what is being reviewed and
how it is calculated.
- Want to build or boost your credit score? The Consumer Financial Protection Bureau offers information on 3 common credit issues and what you can do to fix them.