Should You Use Your Credit Cards If You Want To Raise Your Credit Score?
by Mr Credit CardWhat is the best way to raise your credit score when you don’t want to use your credit cards? A reader, Kate, left us a comment with this question:
Thanks for such a wonderfully informative post. I’m on the flip side of this situation– I hardly ever use my credit cards because I want to stay debt free, but I have been hearing a lot of reports recently about credit card companies closing accounts that are inactive for several months.
I never realized that not using my credit card and keeping a zero balance could hurt my credit score, but it seems that it might, so should I make small purchases once a month and just pay it off at the end of each month? Also, does it matter if I purchase something as small as a pack of gum or does the credit card company want you to spend a specific dollar amount each month?
It looks like that in today’s credit situation, The Power of Small reigns supreme– that it’s the little things we do that really matter. Correct?
Kate,
You are exactly right. Making small purchases on each of your credit cards and then paying the balance off each month is the best way to raise your credit score.
Alternately, you could consider using a cash back credit card. If you took a cash back (or rewards card) and applied some of your regular bills to it each month, then you would be earning a little bit of money back on your monthly expenses and you would raise your credit score in the process.
Either way, it takes regular use of credit to build your credit score. Here are a few guidelines as you begin to do this:
Don’t go into debt - Yes, you need to use your credit cards each month, but you should not ever, ever carry a balance. Carrying a balance on anything, especially a large balance, hurts your credit score. Lenders want to see that you have credit and don’t use it. Somewhat unfairly, they also want a good track record of timely payments. So, you compromise. Either use your card for one trip to the grocery and pay the balance, or use it for your bills and earn rewards. Never charge more than you can pay back in a month.
That is why I suggest using rewards cards to pay your bills. It means that your budget will not change, and you will get a small percentage of your money back.
How much should you charge each month? If you want to raise your credit score, you should never use more than 20% of your available credit each month. Even if you are paying the balance in full every time, your credit report still shows how much has been charged in that month. Even with rewards cards, do not charge more than 20% of your available credit limit. (This is assuming your aim is to raise your credit score, and not to get maximum rewards.) If you have a card with a $1,000 limit, do not charge more than $200 a month on it.
You can also consider checking your credit reports: It is shocking how common credit report inaccuracies are. If you are worried about your credit score, then a good place to begin is by taking a look at your credit reports. Just do a quick check through to make sure that all of your accounts are reporting like they should. It won’t do you any good to use your credit cards if the accounts aren’t being reported correctly to the credit bureaus. You can get one free copy of all three of your credit reports per year by visiting Annual Credit Report.com.
If you are actively trying to raise your credit score it may make sense to monitor your credit score and your credit reports a little more often than once a year. You can visit MyFICO.com to see your credit score, and all three of the credit bureaus sell services that let you see your credit reports as often as you want to.
Thanks for your question!
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April 27th, 2009 at 14:44
Wow! Thanks so much for answering my question with a whole post. I feel so lucky
This was such helpful advice and I will definitely take it to heart. I just finished reading an advice book that has really inspired me to start making these incremental changes, called the Power of Small, and for me, getting my finances in order is my number one priority. So, your advice is truly appreciated! Although I do have a strong credit score, my husband and I are hoping to purchase a home in the next few years, so every little small change I can to make it perfect helps!
May 29th, 2009 at 15:12
I think credit card can be a very handy tool for getting a good credit score. It really will help people to establish credit history without taking long term high volume loans. But the key is to make small purchases and paying it off at the end of the month.
October 14th, 2009 at 13:17
This is a great article on how to use your credit cards correctly to raise your score! Thank you! I’m in the same situation as Kate – I don’t want to use my cards but have to to help my credit score. I’ve found that a great way to do this is by having a store card at your favorite store. For instance, I have a card with Kohls (my favorite store to buy clothes). Since I already shop here frequently, instead of just paying cash like I used to, I charge the shirt or whatever and pay it off that month. By doing this I have seen a great boost in my credit score and as a perk I receive monthly deals from Kohls that save me even more money simply because I am a Kohls charge card member. So it works out great all around! I also highly recommend becomming a member with a credit watching website that will frequently give you your creit report. I am a member with Privacy Assist since I get a discount for it through my bank. I have been a member for about 18 months and love it! I receive my 3 credit reports and score every 3 months and have all sorts of tools in the mean time to use to help raise my score. My favorite is the Credit Anaylizer. This tool can give you a hypothetical of what may happen if you open a new card, pay off balances, charge a card, and so much more. Using a toll like this one, is how I have raised my score by 120 points in just a few months! I highly recommend it!
I do have a question also and hopefully I ask this right. I am a new member with American Express Gold Rewards card. This will be my first card where there is no limit. I can spend thousands and just pay it off monthly. Since I already do this, I’m really excited about racking up all of the rewards by putting my business expenses on this card. However, since there is no credit limit with this card, how do I use it in such a way that it will raise my credit score? I am used to the scenario mentioned above where you use 20% of your available credit and pay it off. How will not having a preset spending limit and spending thousands on this card (business expenses as a business owner) paying it off monthly effect my score? I plan on putting allot on this card but should I back off on how much? I was planning on putting most business expenses on it to help get my travel rewards. I have no problem paying it off monthly what so ever and do not need to charge it, I just want the rewards and raise my credit score. Does it matter how much I put on it? Please help!
October 23rd, 2009 at 20:23
Yes, one must use credit to boost credit. The problem occurs when someone doesn’t have the self control to limit the spending. Keeping with the 20% strategy will always move the score up.