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Thursday, September 08, 2005

It Takes Credit To Build Credit

Using a credit card wisely is an important step in building agood credit rating. If you're trying to re-build your credit orif you're young and just starting out, pay close attention thenext time you receive a new card offer in the mail. When you'retrying to build a positive credit history for yourself, using theright credit card makes sense. Making small purchases and thenmaking your payments on time each month is a simple, reliable wayto build an outstanding credit report.
Whatto Look For On a Credit Card Application
If youreceive a credit card application that appears to offer a lowmonthly interest rate, don't make a decision until you turn itover and closely examine the Disclosure Box. In it you'll find amore important measure of credit terms - the Annual PercentageRate, or APR. By federal law, the Disclosure Box will alsotell you whether or not the card has what is called a graceperiod - a number of days, usually 25, until your purchasestarts to accrue finance charges. If a card has a reasonablegrace period and you pay off your balance at the end of eachbilling cycle, you won't have to pay finance charges. It isn'tdifficult to find credit cards that offer these grace periods, soif the Disclosure Box doesn't declare one then throw theapplication in the trash and look for a better offer./>If you don't have any credit history at all, a credit cardcompany won't want to give you a very high credit limit, butthat's probably best when you're just starting out. You don'twant to be tempted to go into serious debt with your very firstcredit card.
Calculate Your Monthly FinanceCharges
Ideally you want to pay off your balanceeach month to avoid paying any finance charges, but when thatisn't possible it's important to know the actual cost of theitems you purchase. The annual percentage rate, divided by 12months, gives you the periodic rate that will be appliedto your outstanding balance each month. You can estimate whatyour monthly finance charge will be by multiplying the periodicrate times the outstanding balance. It may sound complicated atfirst, but taking the time to learn this simple equation can makea big difference in how you use your credit card.
Whenyou're able to see how much you actually spend on an item thatyou don't pay off at the end of the month, it might help you toresist the temptation to over-use your card. An item that youwant to buy might be on sale at the time you purchase it, but ifyou don't pay off your balance at the end of the month then thosefinance charges can dramatically increase the actual amountyou'll end up paying.
Use Your Credit Card asa Tool
Credit cards are only one of the toolsavailable to help you build a positive credit history. Makingon-time payments for other forms of credit, such as rent andutilities, are also important. Depending on your situation,within 1-2 years your credit rating will be improved enough thatyou no longer need to use your card for new purchases to maintainyour good credit. Use these tools wisely, and they'll help buildyour financial future!

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