subject: How Can Credit Cards Build Credit [print this page] Using credit cards is an excellent method to help people increase their credit score. This can help individuals build their credit when they have just moved out of their parents' house, or it can help to increase a person's poor credit rating. However, using a credit card can also damage a person's credit score, so it is important to know how using a credit card is related to increasing credit ratings. The following information tells how using a credit card can help individuals build credit and how employing it improperly can damage a credit score.
Why Is a Credit Score Important?
A credit score is important because it tells companies how reliable someone is when making payments. For example, a good credit score can help people get approved to rent an apartment, get a loan or buy a car, because a good rating means that a person will make their payments on time. It is crucial to maintain a good credit rating, because individuals may need to get large loans in the future.
Credit Card Companies Report to the Credit Bureau
The thing that makes credit cards important is that they report payment records to the major credit bureaus. These bureaus keep a record of on-time and late payments to determine a person's credit score. When a person wants to purchase a car or home or wants to get a loan, the companies the individual is purchasing from will communicate with the credit bureaus to get an understanding of how reliable the person is with their payments. Since credit card companies always report both on-time and late payments while other companies, such as apartment complexes and phone companies, don't, using a credit card is one of the best ways to let the credit bureaus know who pays their bills on time, thus helping to increase credit scores.
On-time Payments Are a Must
Some companies don't always report on-time payments to the credit bureau and only report when a person misses a payment. However, credit card companies report everything, so if a person is looking to build their credit score, it is important to make full, on-time payments so that his or her score will increase. It is essential that people are paying their full payment on time and not just the minimum, as this can still be counted as a late payment if not paid in full.
Late Payments Are Expensive and Damage Credit Scores
Late payments are not good when a person is trying to build his or her credit or is aiming to maintain a decent credit score. This can also get people in trouble with their credit card company. Late payments can cause a person to acquire both late fees and interest rates on their account. These late fees often run around $30 despite the amount of money that still needs to be paid. Additionally, a percentage of the late payment is added onto the account, and every time a person misses a payment, his or her interest rates increase. This means that one cup of coffee can end up costing an individual $35 or more if this person misses a payment, and it still goes on his or her record, decreasing his or her credit score.
