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You want to use your credit cards to boost your credit score. This is possible as long as you pay off your credit cards right.
You can use your credit cards to build your credit score. However, you need to pay off your credit cards* in the right way. This is something that a lot of people get wrong.
You know that you don’t want to carry a balance over on your credit cards. This leads to interest being charged, and that can end up being a lot. Paying the minimum on your credit cards to get out of debt is one of the worst things that you can do.
It’s important to pay off everything you spend in a month, but you don’t want to do it too early. Here’s everything you need to understand about paying off your credit cards to boost your score.
Don’t pay off the money right away
One of the biggest mistakes I see is people spending the money on their credit cards and then paying that off the following day. You see, they have the balance available* and they just want their credit cards to boost their credit scores. They also want the points on their credit cards.
Well, there is a problem in clearing the credit cards right away. The credit card companies aren’t reporting the full amount that you spend. It doesn’t look like you’re actually using your cards, especially if you have a zero balance at the time of the statement being made.
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Pay off your credit cards after the statements come in
Instead of paying off the purchases right away, allow them to report to the credit agencies. Make sure those payments show up on your credit card statements. This tells other companies that you use your money wisely.
Now you can pay off the full balance. As long as you pay off the full balance before the due date, you won’t be charged interest on the amount. This is something people get confused on. You’re only charged interest if you don’t pay off the full statement before the due date.
If you’re currently trying to get out of debt, you’ll want to pay off as much as you can. Just paying the minimum isn’t going to get you out of debt that quickly. The credit card companies want you in debt as they get to take more money from you through interest.
Keep your balance below 30%
You need to make sure your statement balance is below 30% of the available limit that you have. This is going to show to other companies that you are sensible with your money.
So, if you realize that your balance is over 30% before the statement comes through, clear off as much of the balance as you can. Get it to the 30% mark to look like you’re using your credit cards sensibly. The statement will show just how much you have spent at the time the statement is created. It doesn’t matter how much you had on it at one point in the month.
You will boost your credit score doing this. You’re showing that you’re good with money and you do sensibly use your credit cards.
MORE: 5 basic elements of a personal budget
Are you struggling with your finances? Are you trying to use credit cards to boost your credit score? Get in touch to find out how I can help you manage that.