Before granting you a line of credit, financial services providers and credit card issuers must first determine if you’re creditworthy—that is, if you have a proven record of paying back what you owe. This quality is standardized and measured using your credit score. The higher your credit score is, the more creditworthy you are. This means you are more likely to get approval as well as a better interest rate, favorable terms, and a higher credit limit for your loan or credit card application online.
If you already have a credit card, how can you build your credit score to enjoy these perks and become eligible for competitive card programs like the Landers Cashback Everywhere Credit Card by Maya? The answer is surprisingly simple in principle: you can use your current card to showcase your ability to manage credit responsibly.
It may be a little more difficult to envision how you can build and improve your credit score with your credit card in practice. To that end, and towards making yourself a more appealing borrower to potential lenders, here are the ways you can use your credit card to demonstrate your financial responsibility and give a much-needed boost to your credit score:
1) Pay Your Balance on Time
On-time payments are the cornerstone of good credit. Since payment history makes up about 35 percent of your credit score, you’ll want to ensure that you pay your credit card bills by their due dates. Late payments can significantly bring down your credit score and result in hefty late fees and increased interest rates.
To build a solid history of punctual payments, set reminders or enable automatic payments. Keeping this practice up will allow you to show lenders that you’re a reliable borrower, which will reflect positively on your score.
2) Keep Your Credit Utilization Low
Your credit utilization ratio is another critical factor in your credit score. This refers to the amount of credit you use compared to your credit limit, and it’s ideal to keep your utilization rate under 30 percent. This is because higher utilization signals to lenders that you might be overextending yourself financially.
For instance, if your credit limit is PHP 100,000, try to keep your outstanding balance below PHP 30,000 at any given time. Using less of your available credit boosts your score, and it also leaves you more room to handle emergencies or unexpected expenses.
3) Pay in Full Whenever Possible
Carrying a balance on your credit card from month to month incurs interest, and this amount can eventually add up and eat into your finances. While paying the minimum amount due keeps your account in good standing, the best move is still to pay off your balance in full, as this helps you avoid interest charges.
Remember that while carrying a balance doesn’t necessarily help your credit score, maintaining low balances or paying them off entirely demonstrates responsible credit usage. This habit can also save you significant money in the long run.
4) Use Your Card Regularly
To ensure that your credit card is making active contributions to your credit history, you need to use it regularly. Even small, manageable transactions like paying for weekly groceries or monthly streaming subscriptions can add to your credit profile. Still, avoid overspending just to build a credit history. Make it a point to only charge what you can afford to pay off.
Regular usage will ensure that your credit card issuer reports activity to credit bureaus, further building your credit profile. In addition, using your card responsibly often allows you to earn rewards like cashback or travel points.
5) Limit New Credit Applications
Creditors place a hard inquiry on your credit report every time you apply for a new credit card. These inquiries, while necessary to determine your creditworthiness, can slightly lower your score. This is especially true if you submit multiple applications in a short time.
Instead of applying for multiple cards, focus on responsibly managing your existing accounts. Being selective about new credit applications protects your score and reduces the risk of accumulating excessive debt.
6) Increase Your Credit Limit
A higher credit limit can help you lower your credit utilization ratio, which then positively affects your score. For example, if your credit limit increases from PHP 100,000 to PHP 150,000 while your spending remains consistent, your utilization ratio will drop.
It’s a smart choice to treat this increased limit as a tool for improving your credit, and not as an invitation to spend more. There’s also the option to request a credit limit increase from your issuer; it’s actually a simple process that, if granted, can significantly improve your financial flexibility.
7) Keep Older Credit Cards Open
The length of your credit history influences your credit score, and cards with longer histories typically yield higher scores. Even if you no longer actively use an older credit card, keeping the account open can benefit your score by extending your credit history.
Closing old accounts, on the other hand, reduces your total available credit and can increase your utilization ratio. Consider using older cards occasionally to keep them active and prevent account closure due to inactivity.
Smart Credit Card Use Opens Doors to Better Credit Lines
In the end, using your credit card strategically not only boosts your credit score, but also demonstrates your ability to manage credit wisely. Develop good credit habits now, and you’ll position yourself for a brighter financial future where lenders are more likely to say yes to your needs.
