If you’re not happy with your credit score, you may decide it’s time to take control of your finances, pay down your credit card debt and rebuild your credit. You’ll have a lot to think about as you plan your course of action. One of your toughest questions may be whether or not you should continue using credit cards while you’re rebuilding your credit.
Many people with poor credit also have high credit card debt. In fact, maxed-out credit cards or carrying a lot of credit card debt can significantly influence your credit score. Credit bureaus consider your ratio of credit available to credit used, total debt and types of debt when calculating your credit score.
So if you’re rebuilding your credit, you may feel that credit cards got you into your poor credit situation, and that you should swear them off altogether. However, that’s not necessarily the best course of action.
Wise use of credit cards can be good for your credit score. Paying your bills on time and having more credit available than you use all reflect positively on your credit report. If you can commit to setting aside bad habits – like carrying a balance or using credit cards for transient purchases like groceries or movie tickets – you might find credit cards to be a useful tool for improving your credit standing.
If you decide to continue using credit cards while rebuilding your credit, keep these rules in mind:
- Focus first on reducing the debt you already have and promise yourself that you won’t create any new debt while you’re working on regaining control of your finances.
- Cultivate new, better habits for credit card use. Pull out the plastic only for purchases that you know you’ll be able to pay off right away. If you’ll have to carry a balance in order to buy something, don’t buy it. Instead, save toward the purchase. It’s better to wait a few months to buy something than to increase your debt and pay the interest associated with your credit card rate.
- If you’re having trouble getting someone to give you a traditional credit card, consider getting a secured card. A secured card requires you to put up a certain amount of money in order to use the card, helping ensure you don’t go over your limit, and that the debt is essentially pre-paid. It will look the same on your credit report as a traditional card.