You are finally seeing the light at the end of the tunnel. Your last debts have been paid off a few months back and your bank account is steadily growing for a change. You aren’t stressing daily about affording life in general. It feels good. The tide then begins to turn as you work to rebuild your credit score. It is a time-dependent process that requires your savvy use of different types of credit in order to boost your score. You soon discover that in order to bring up a low credit score you need to get back into the world of credit cards.
For a former debtor the return can bring about a lot of mixed feelings and a bit of insecurity about how to manage the very thing that got them in to debt.
When you are recovering from debts it can be a confusing time to get back on track. You have money in the bank and are paying your bills on time without a problem, but your credit score is not getting any higher. The realities of the credit score calculations involve how you use your credit and the type of credit you have. If you are only paying a mortgage payment each month the information being reported back on your credit report is limited. It is not reflective of how you manage different types of credit.
In order to use your credit in a way that will improve your credit score it is ideal to have a mortgage loan, a personal or auto loan, and a credit card account. This will show creditors that you do have control of your finances and can be responsible for handling multiple types of extended credit. The information being reported back to the credit bureaus will begin to impact your credit score provided you pay consistently on time.
If your score needs a boost you may consider returning to a credit card. However, if you have concerns about the risk and temptation is too great, you may need to continue with other financial strategies for a longer period of time.
Selecting the right card is an important first step. You need to compare the variety of card offers on the market today and find one that suits your lifestyle. A general incentive card everyone can benefit from are the cash back cards being offered by several banks. You can make the cash back incentives work in your favor and if you continue to use the card wisely you will also bring up your score.
Creating a plan will be the next step in the process of your credit card return. After you have found the right card for your lifestyle you need to determine how to use it best. Start with your budget and figure out which expense can use the credit card most beneficially. For instance, the key to using credit wisely is by making small, regular purchases and paying the balance off in full before the end of the billing cycle. If you must commute daily to work you may want to dedicate your credit card solely for purchasing gas. A cash back card will have rewards that accrue regularly and you will not be making impulsive buys you can not afford on your credit card.
For whatever reason you allocate your credit card use towards you need to remember to put the cash value of what you spend on credit into an envelope or a bank account so you’ll be assured you have enough to pay off the full balance. Carrying over balances from month to month will cost you money in finances charges and you run the additional risk of getting drowned in debt once again. The last thing you want to do is repeat recent history.
With regular use and payment in full you will be able to see your credit score increase if you continue on the right track. You must realize that this simple way of utilizing a credit card can work to your advantage, but it may also work against you. You may consider one or two different credit card accounts allocated to specific, controllable expenses but you have to resist the urge to want more, more, more.
Getting trapped in the cycle of misuse of credit cards is very easy as many consumers do find they fall back into old money habits without much thought, especially when they feel financially comfortable. It is better to stay consistent with your credit use for credit score boosting purposes but it is even more essential you continue socking money into savings and other financial goals.
Re-entering the credit card world doesn’t have to be complicated if you take the time to compare card offers and remain dedicated to your mission of staying debt free and financially stable.
Photo by shawnzrossi via Flickr
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I'm just an average mom, trying to live a frugal life and get out of debt. I write about things that have (and haven't) worked to improve my family's financial situation. What works for me may or may not work for you, and you should always consult a financial advisor before making important financial decisions.
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