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It Takes Credit To Build Credit
Using a credit card wisely is an important
step in building a good credit rating. If you're trying
to re-build your credit or if you're young and just
starting out, pay close attention the next time you
receive a new card offer in the mail. When you're trying
to build a positive credit history for yourself, using
the right credit card makes sense. Making small purchases
and then making your payments on time each month is
a simple, reliable way to build an outstanding credit
report.
What to Look For On a credit card Application
If you receive a credit card application
that appears to offer a low monthly interest rate, don't
make a decision until you turn it over and closely examine
the Disclosure Box. In it you'll find a more important
measure of credit terms - the Annual Percentage Rate,
or APR. By federal law, the Disclosure Box will also
tell you whether or not the card has what is called
a grace period - a number of days, usually 25, until
your purchase starts to accrue finance charges. If a
card has a reasonable grace period and you pay off your
balance at the end of each billing cycle, you won't
have to pay finance charges. It isn't difficult to find
credit cards that offer these grace periods, so if the
Disclosure Box doesn't declare one then throw the application
in the trash and look for a better offer.
If you don't have any credit history
at all, a credit card company won't want to give you
a very high credit limit, but that's probably best when
you're just starting out. You don't want to be tempted
to go into serious debt with your very first credit card.
Calculate Your Monthly Finance Charges
Ideally you want to pay off your balance
each month to avoid paying any finance charges, but
when that isn't possible it's important to know the
actual cost of the items you purchase. The annual percentage
rate, divided by 12 months, gives you the periodic rate
that will be applied to your outstanding balance each
month. You can estimate what your monthly finance charge
will be by multiplying the periodic rate times the outstanding
balance. It may sound complicated at first, but taking
the time to learn this simple equation can make a big
difference in how you use your credit card.
When you're able to see how much you
actually spend on an item that you don't pay off at
the end of the month, it might help you to resist the
temptation to over-use your card. An item that you want
to buy might be on sale at the time you purchase it,
but if you don't pay off your balance at the end of
the month then those finance charges can dramatically
increase the actual amount you'll end up paying.
Use Your credit card as a Tool
credit cards are only one of the tools
available to help you build a positive credit history.
Making on-time payments for other forms of credit, such
as rent and utilities, are also important. Depending
on your situation, within 1-2 years your credit rating
will be improved enough that you no longer need to use
your card for new purchases to maintain your good credit.
Use these tools wisely, and they'll help build your
financial future!
1howto.com
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