Using a credit card can be an effective way to boost a consumer’s credit score over the long-term. By using the card correctly, the consumer may be able to increase his credit score and get approved for financing more easily. The way that the card is used will have a profound impact on the credit report of the individual.

Use Credit Wisely

The way that the card is used to make purchases has a big effect on the credit score of the individual. For example, making small purchases with the card and then paying off the balance in full every month is one of the best things that a creditor can do to boost his credit score. One of the biggest factors in calculating a credit score is the payment record of the individual. If the cardholder always makes his payments on time, it will boost his score by quite a bit over the long-term.

Paying Down Card Balance

When a consumer has a large balance on his credit account, this will negatively impact his credit score. The FICO formula that is used to come up with a consumer’s credit score puts an emphasis on having a low amount of debt. If the balance on the card is more than 30 percent of the available credit on the account, this is a negative. Consumers should try to pay down the balance is below this 30 percent mark so that they can boost their credit scores. As soon as the balance is paid down below this level, it will have an immediate effect on the credit score the next time it is calculated.

Fraudulent Purchases

Credit cards can sometimes be compromised and used to make fraudulent purchases. When an identity thief takes a credit card and uses it to make several purchases without the card holder knowing, it can hurt that person’s credit score. In some cases, identity thieves open new card accounts in the name of another person. They then start making purchases with this new card and the victim may not even know its happening. Because of this threat, it is generally a good idea for consumers to check their credit reports regularly so that they can see if any new credit accounts have been opened.

Leave the Account Open

After paying off a large amount of debt on a card, many consumers take the step of closing out their account. While this can be a good way to eliminate the temptation of spending more money on the card, it can also work against the consumer when it comes to boosting their credit profile. One of the items that the credit bureaus look at when they are calculating a credit score is the length of time that accounts have been opened. Accounts that have been open longer hold more weight in the eyes of the bureaus. Instead of closing out an older account after the debt has been paid off, it is usually a better idea to leave the account open. The consumer does not have to use the account that much, but having it open can help his credit score.

Using a card responsibly can significantly boost a consumer’s credit score. Implementing some of these strategies could lead to lower interest rates on loans and easier approvals in the future.

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In recent years, many consumers have turned to balance transfer credit cards as a way to consolidate debt. Using this strategy can provide an opportunity for the cardholder to take advantage of zero percent interest rates over an extended period of time. In some cases, this can help the cardholder pay off debt quicker and take control of their financial life again.

How the Strategy Works

The basic premise behind consolidating debt on a balance transfer card is quite simple. The reason that most people use these types of cards to consolidate debt is because they offer zero percent interest for a certain amount of time. For example, a cardholder may get a period of 12 to 24 months of zero percent interest on balance transfers.

To facilitate this strategy, the consumer opens a new credit card account to take advantage of one of these low or no interest offers. Then he transfers the existing balances from other cards over to the new card. This can be done by contacting the new credit card company and providing information about his other accounts. The credit card company then contacts the other card issuers and transfers their balances over to the new account. At that point, the cardholder is left with just the one new card. It has all of the balances from the other credit card accounts on it. During the introductory period of the card, the cardholder doesn’t have to pay interest on the balance. He can then put an emphasis on paying down the balance during that introductory period.

Advantages

The big advantage of using this strategy is that it can help the consumer avoid paying large interest rates. If the balances of his existing cards are left intact, he may have to pay somewhere between 10 and 20 percent interest. By simply transferring these balances to a new credit card, the individual can sometimes get out of paying any interest on the debt. If he can pay off the debt within one to two years, he can get by without paying a dime of interest to the credit card companies.

Doing it Right

Using this approach can be beneficial, but it has to be done right. If the credit card holder does not pay his minimum payment each month on time, he can run into problems. If a payment is made late, the credit card company may get rid of the introductory interest rate. At that point, the credit card account interest rate may jump up to the normal rate. When this happens, it basically defeats the purpose of transferring the balance over to the new card in the first place.

Avoiding More Debt

One of the risks of using this strategy is that it opens up free credit on the other cards. For some people, this is too big of a temptation for them. They end up using that available credit to make additional purchases. Then, once they have filled up their old accounts again, they are left with very large balances and they have no way of moving the balances to new accounts again in the future.

If balance transfer credit cards are used correctly, they can be a very effective tool for paying down debt. If they aren’t used correctly, they could lead to more debt and more interest being paid on it.

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