Published On: Wed, Jun 4th, 2014

How to Use Credit Cards to Increase Your Credit Score

Being removed from the world of credit ( this is code for major financial meltdown), was a completely involuntary decision.  But after living credit card free for five years, All Cash Queen has returned to the world of credit.  What! Why? How could this happen?  Relax America, the All Cash Queen is not just about using cash, it’s about moving away from our dependence on debt and getting free from the bondage of debt.  Obviously, credit can be used as a tool to fund some of your larger financial expenses such as a car, house or an education.  But depending on debt to fund everyday expenses can leave you and your credit score (I speak from experience) vulnerable to life’s ups and downs.  After using cash solely to cover expenses, rebuild savings and re-establish a financial plan, I decided it was now time to enter back into the world of credit to increase my credit score and maximize options.

credit-score-credit-cardHere’s how to use your credit card to increase your credit score and maximize your options.

  1. First, balance your budget; create a spending plan and a debt re-payment plan.  Now you may feel a little tricked or mislead at this point but I cannot allow you to just run off and start using credit cards to build your credit score when your everyday money management is all out of whack.  Don’t get it twisted; the mission is to be debt free people first things first.
  2. Have an emergency fund – Save at least $1000 to keep yourself away from depending on credit card usage.  The key to using credit strategically is to insure your are not dependent on it for everyday expenses.  Life happens, on a daily and hourly basis.  Whether you wake up to a flat tire, your cellphone decides to take a swim in the toilet or surprise, daughter Katie’s birthday is next week, if you don’t have the cash you will lean on credit.
  3. Pay on time – Doesn’t seem like new information but just in case you didn’t know, creditors assess your payment history as the highest factor affecting your score.  Remember the family member you loaned money and never go it back.  Did there ability to pay their bills loose points with you?  Exactly!
  4. Stay within 30% of your credit limit – A Creditor considers you to be properly managing your debt if you maintain your balances around 30% of the credit limit.  A bit of a Jedi Mind Trick but just because they granted you a $1000 limit, does not mean they actually want you to use it.  Therefore, if you find yourself above the limit quickly get below and work your way down to the 30%.

  5. Charge only things you have already budgeted for, unless of course it’s an emergency – It sounds strange but with this strategy you don’t have to figure out where the money is coming from and you are adding activity to your credit report.

Now let’s re-cap.  Charge budgeted items within 30% of your credit limit and pay on-time.  This monthly activity will positively affect 65% of what makes up your credit score.  Remember a credit score is an assessment of how you manage debt.  Using the rules of the credit world to demonstrating your ability to manage debt will ultimately increase your credit score.

Rhonda Williams

Rhonda Williams

Financial Management Counselor at Operation HOPE
Ms. Williams has been teaching and encouraging clients, peers and her family in the area of personal finance for more than 10 years.Ms. Williams is known affectionately as the “All Cash Queen” among her peers and family.As a certified financial counselor, Rhonda brings a wealth of knowledge, expertise and experience to her audience.
Rhonda Williams

About the Author

- Ms. Williams has been teaching and encouraging clients, peers and her family in the area of personal finance for more than 10 years. Ms. Williams is known affectionately as the “All Cash Queen” among her peers and family. As a certified financial counselor, Rhonda brings a wealth of knowledge, expertise and experience to her audience.

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Did you know?

African Americans are significantly more likely to have some type of debt (94%) compared with the general population (82%). Credit card debt, student loan debt, and personal loans are all significantly higher in the African American community.

Source: Prudential’s 2013 "African American Financial Experience" study