Credit cards allow you to buy now and pay later. This is an incredibly useful instrument to have in your financial toolbox. But did you know that they can also be used to improve your credit score?
We find out under which circumstances this is true, and we consider some tips on how you can use your credit card effectively and, in the process, improve your credit score.
Credit cards don’t automatically improve your credit score
Gareth Price, founder of both Cloudworx and Investmint, and CFO at BackaBuddy, says that acquiring a credit card does not automatically improve your credit score.
“It all depends on how you manage your credit card. If you make late payments or miss them altogether, this will impact your score negatively. In this case, you would be better off without a credit card,” says Price. If, however, you manage the credit well, your credit score will soar.
How to use your card effectively to boost your score
Darryl Adriaanzen, group executive of operations at African Bank, says that you can prove your creditworthiness by keeping your credit card account up to date.
“This will allow you to secure loans and other forms of credit when you need it most – and often at more favourable interest rates,” says Adriaanzen.
Price recommends the following tips if you’d like to use your credit card to improve your credit score.
- Make your payments on time every month, without exception. Any missed payments will have a negative effect, even if you pay back double the following month.
- Don’t take on too much debt. The credit bureaus will take into account the total debt you have when calculating your credit score. Just because you have been offered a credit card with a R50,000 limit doesn’t mean you need to take the full amount. Rather, take a lower limit to make sure you don’t become overindebted.
- Don’t max out your credit card. This indicates that you are relying on credit to get through the month, increasing your risk profile and potentially damaging your score.
Not sure what your credit score is? Sign up with CreditSav and get your credit score for free.