How To Responsibly Use A Credit Card


How To Responsibly Use A Credit Card

Credit cards are financial tools, nothing more. If one uses them wisely, they are massively beneficial. If one uses them irresponsibly, they can be massively detrimental.

Some people get their first credit card and max it out, and then proceed to pay the minimum payment every month.  Others pay off there credit card multiple times a month because they don’t want to hold a balance.  These situations show the different extremes of people that use credit cards.  Some people pay a lot of interest, and some pay none.  This article will discuss how credit cards work and how most people should use them.

How To Responsibly Use A Credit Card

The key to credit cards is don’t spend more money than you have. You treat it like a debit card, and pay off the balance in full when you get the bill.  This way, you don’t pay any interest the credit bureaus know that you are using the card responsibly.  If you do this, your credit score will rise quickly.

General Tips for credit card use:

  1. Use it as a payment mechanism of convenience if
    1. It is the most convenient option for you.
    2. You can afford it.
    3. You don’t mind the data on those purchases being tracked, recorded, retained, and entered into all kinds of huge databases that you have no control over, correlated, used for marketing and sold on.
  2. Use it to “build credit”, that is, use it responsibly over a long period of time, to demonstrate that you deserve a high credit limit. When using it this way, pay off the full balance each month, pay on time, and don’t max the credit card out.
  3. Use it for emergencies. This is the only situation in which you would go seriously into the red. Your credit card debt must be short term. If you stay in the red longer than three months max, you’re doing it wrong. (Long term credit card debt is no longer an emergency; it’s allowing you to be exploited despite the existence of other options.) If you’re in the red one month, and the next month you’re deeper in the red, you’re also doing it wrong, and need to get urgent debt counseling. Be aware that credit card debt is probably about the most expensive credit you can buy.

Financial Security Thanks To Good Credit Score

Even though credit score is not necessarily associated with financial security it’s hard to underestimate it’s impact on the state of household budget in case of sudden financial crisis. The bitter truth however is that most of us do not really pay attention to credit scoring and don’t bother monitoring credit history until the disaster strikes and the precious low interest credit facilities are no longer available.

What options does good credit score give you in case of bad financial situation? Quite a few, actually. First of all in order to have a good credit score you’re most likely than not on good terms with your bank which in turn means that extending the overdraft limit should not be difficult even if you’re temporarily unemployed. Decent credit score will also help you with credit card application which may become your best friend when unexpected expenses seem to pile up and cash evaporates just too quickly. Lastly, good credit score enables you to perform advanced financial operations such as remortgaging your property with equity release, freeing up money in the process.


How to make sure credit score is up to scratch and ready when you need it? Many credit repair companies will claim that their ‘secret techniques’ to improving credit history are incredibly innovative but the truth is that most people can repair their credit score given enough time and the basic instructions. Unless you’re knee deep in debt improving your score for the sake of financial security should be fairly simple and mostly based on common sense – pay your bills on time, don’t use too much of the available credit facilities and make regular credit card repayments.

The less obvious actions which will see your credit score rise are registering for electoral roll, taking out minor loans and repaying them on time and getting married (just in case anyone would like to take the vows to improve their credit rating).

Is it better to use savings or use the credit facility? A question without an easy answer since the amount of savings and their purpose depends largely on the saver’s lifestyle. People who choose to live as independently as possible will probably move their savings first in an attempt to avoid dependency on lenders. While certainly plausible, such decision may not necessarily be in that person’s best interest – perhaps using a low interest loan would create a convenient and secure buffer just in case some more financial problems were on the way.

What Affects Your Credit Score

When it comes to credit scores, there are three national credit bureaus (Experian, TransUnion, and Equifax) in the United States each with their own database of information.  These are the most widely used bureaus, but many lenders use there own formulas and/or smaller credit bureaus.  That is why if you ever received your credit scores, they probably were similar but not exactly the same.  This page discusses the factors that affect your FICO (Fair Isaac Corporation) score, the most respected and widely known credit score in the United States of America.  The five factors that determine your FICO score are discussed in detail below.

1. Payment History


Your payment history consists of how well you pay your debts.  If you have ever missed a loan payment such as car or mortgage your score will drop.  Also, if you’ve not paid a bill, such a cell phone or power, it may also appear on your credit report.  It’s pretty straightforward when it comes to the affect it will have on your credit report, if you pay your bills on time it will be a positive item on your report.  Any missed payments, small or large, will have a significant negative impact on your scores.

Generally as time passes the missed payments have a lesser affect on your score.  For example, a payment missed a year ago will have a bigger score impact than a payment missed 5 years ago.  Its also worth knowing that a missed payment for any kind of bill should fall off your report after 7 years, paid or not.  There are some exceptions for this 7 year rule which are discussed in other articles on this site, but in most cases the missed payment(s) will fall of after 7 years.

Your payment history also included any liens and judgements against you, as well if you’ve gone into bankruptcy in the past 10 years.

Payment history typically determines about 35% of your credit score, so its very important that you not miss any payments.  Payment history is the most important aspect of your credit score, since your credit score is mostly used to by people to predict how likely you will repay back your debts.

2. Credit Usage / Utilization

Your credit utilization is also very important to be aware of, but often goes unnoticed by many people.  Credit utilization is how much of your credit you actually use.  So say you have one credit card with a $1,000 limit.  If you spend $500, your credit utilization is 50%.  On your credit report, it sums up all of your credit card debts and limits to get one percentage to use for the score.

Most people are in agreement that any utilization greater than 0% and less than 10% is a good percentage and will impact your credit score positively.  As you go above 10% utilization, the closer you get to 100% to more it negatively impacts your score.  Maxing out your credit cards can have a significant negative affect on your credit score.  Lenders see that as a sign that you’re having trouble controlling your spending.

Credit Utilization typically makes up about 30% of your credit score, making it the second biggest factor in your credit report.  For many people, this is one of the easier aspects of the credit report to fix without spending very much time or money.  You can decrease your utilization by simply requesting credit line increase on your existing card(s), or applying for new cards (applying for new cards may negatively impact your score, please read the inquiry section below).

3. Credit History Length

The affect that your credit history length has on your credit score is very straight forward, the longer your credit history the better.  In the eyes of lenders, no or short credit history is bad, even if you’ve never missed a single payment.  They see a people with a limited credit history as risky because they don’t know much about your ability to repay debt.

This aspect of your credit report can be very frustrating because there very little you can do to adjust it.  It will only improve your score as time passes and lenders can see that you are paying your debts on time.

The length of your credit history typically makes up about 15% of most credit scores.

4. Types of Credit

Lenders see having different types of credit as a good thing.  They like to know that you can manage any type of debt, whether it be revolving (credit cards) or a term loan (mortgage or car).  They view people managing different types of debt demonstrates responsibility, thus positively impacting their credit score.

Obviously, the only way to improve this aspect of your credit report is to either open up a new credit card or take on more debt.  You should never take on more debt for the sole purpose of improving your credit score.

Types of credit used typically determines about 10% of your credit score.

5. Credit Inquiries

Usually, when you apply for credit, the bank will pull your credit report.  This known as a hard inquiry, and too many hard inquires will hurt your score.  Hard inquiries matter because if you have a lot of them, banks see that as a sign of desperation.  Each hard inquiry typically deducts 2 to 5 points from your credit score.  This should not discourage you, because the affects are short lived and even lessened by computer algorithms in some situations.

Hard credit inquires stay on your report 2 years, but after the first year it should have no affect on your credit score.   If you have multiple hard inquires because you were looking for the best rate for an auto loan or mortgage, a computer algorithm should lump all of those inquires into on as long they are all with 2 weeks of each other.

Banks will also pull what are called soft inquires.  These have no impact on your score, and only you can see them.  When applying for credit cards, its best to assume that a hard inquiry will be done so do not apply to many offers.

Hard credit inquires usually only make up about 10% of your score, but excessive inquires can have a significant negative affect.

How To Remove A Debt In Collections From Your Credit Report

If you have debt in collections, there are ways to remove it from your credit report.  The first thing you should keep in mind is a debt in collections falls off the credit report after seven years, but that timer resets as soon as you start paying on the debt. (Activity = resetting of the timer).  So, if your debt is close to seven years old, just let it fall of the report.   There’s no point in paying it unless you feel a moral obligation.

It is possible to negotiate with a debt collector about a one-time payment that will settle the debt. For example, they will sometimes take a payment of say $2,000 to pay off a debt of $4,000. This is because they know that sometimes they’ll get nothing, so anything is better than nothing. And it is also because the company you originally owed the debt to, has sold this debt to the debt collection company for much less than what you owed, so when the debt collector gets $2,000 from you, they probably still have made a profit.

Approved Credit report form with paperwork

If you have this money, say $2,000-3,000, then I would try to negotiate to have the full debt paid off that way, start by offering a lower amount (say 25% of what you owe), and if they ask for more, try to find a compromise. Make sure you get the agreement in writing before you pay, for example that they will consider the debt settled if you pay $2k. Some will say that you should have everything in writing, and not communicate with them by phone at all. Just to make sure they can’t sue you afterwards and you have no proof of the agreement you made.

If you don’t have $2,000-$3,000 yet, I would perhaps keep paying minimum payments for now and try to save up money to get to that $2,000-$3,000.

If you pay off and settle this debt, it will still show on your report as a negative mark. For the next seven years it will show that you had a debt in collections, and it will say something like “paid” or “settled” (which is of course better than “not paid / still owing”). There have been some stories here that you can also negotiate to “pay for delete”, that is to say that if you pay a certain amount of money on the debt, they will not only consider the debt settled, but they will also completely remove it from your credit report.

10 Most Important Negative Factors Affecting Credit Score

Managing your credit history has become increasingly important in the wake of another economic crisis. Good credit score is an important factor in building the always important financial security for yourself and your family. Even though the most of us try hard not to let occasional slip-ups damage the precious credit rating there are some important considerations which have to be made when managing your day to day budget. The following is a list of most significant factor and mistakes leading to reductions in credit score.

Short credit history. While not a mistake nor error, short credit history will certainly reduce your credit score when it comes to applying for loans and personal finance. It’s wise to early sign up for contractual services such as mobile phone of utilities. Think of it as a process similar to car insurance – the longer you hold your driving licence for the more affordable your insurance will be. Likewise, the longer your credit history – the better credit score can get.


Having no bills in your name. It’s often tempting to let someone else remain responsible for utility bills but keep in mind that, if paid on time, having gas or electricity bill in your name will greatly increase your credit rating and make you eligible for various credit facilities and loans.

Overdue bills and other payments. Signing up for bills is one thing – fulfilling the commitment and paying all on time is another one. Every overdue bill will decrease your credit score slightly. But when your debt comes to the point where a company you owe the money to files a default in your name, things get really bad and can damage your score to the point where only bad credit score companies will consider your applications.

Frequent credit card balance transfers. An odd credit card balance transfer will not have a negative impact on credit score but if you make it a habit and apply for credit cards only to repay other credit cards the lenders may get the impression that you find it hard to pay debts off and reject any further applications coming from you.

Too many open credit lines. Credit facilities are often considered to be great for financial security and many people have open credit lines ‘just in case’. Three or more frequently used credit cards on top of other credit will however make you look as it you were having a hard time managing your finances and damage your score.

Using too much available credit. The rule of thumb is not to use more than the 50% of your available credit. Once you start borrowing more banks start looking down on you and you credit score plummets.

Moving accommodation often. Banks and other lenders hold a particular liking for people who exhibit stability in their financial and personal life as, statistically, they seem to be the group of people who have the least defaults and are most likely to repay their loans on time. Living at the same address for at least three years will look good on any credit application and will contribute towards your credit score.

Type of accommodation. Lenders made it clear that they prefer customers who are homeowners to tenants renting their accommodation. It’s also a well known fact that renting an unfurnished flat or house will make you a more sought-after applicant than someone who rents a fully furnished accommodation.

Having no personal commitments. Just like in case of accommodation having a family life and various personal commitments, such as marriage and children, will make you seem more stabilized and therefore more trustworthy to the lenders.

Type of employment. Lastly, people who decided to go the self-employed route will find that their credit applications are more often rejected and that credit score will fluctuate more than their employed colleagues.

Positive Factors Affecting Credit Score

Repairing credit history doesn’t need to be very difficult and time consuming but requires the specific knowledge of how financial institutions interpret your actions. It’s never too late to start building a strong credit score and stable credit history so check out these tips and see which of them can be applies in your case.

Long credit history. It’s best to start your credit history as early as possible with a contract services such as mobile phones. It’s also a good idea to open a bank account as soon as you’re eligible to do so and apply for a credit card when you manage to secure a stable source of income.

Moderation in the use of available credit. While the money available through credit cards and other credit facilities can be very tempting please keep in mind that the more you use the least likely you are to be accepted for other credit like personal finance. Banks may get the impression that you’re not able to cope with your monthly outgoings and are not a safe customer.


Direct debits as a form of payment. As some people are not very good at managing their monthly payments, especially with all the utility bills, subscription charges, credit card fees and so on, it makes perfect sense to setup direct debts to cover the payments whenever necessary. This way you can be sure no payments are missed and your credit score will not suffer.

Registration with electoral roll. Credit referencing companies use electoral roll to get more information about the applicants so registering yourself with your local City Council will give you a slight boos to the credit score. While it may not seem like much, sometimes a couple of credit score points may decide on whether your application is accepted or rejected.

Being a homeowner. Lenders favour homeowners when assessing credit applications and this is a well known fact. It you’re one of the lucky homeowners you can be certain that it’s properly reflected in the credit score and credit report.

Personal commitments. While no-one would take the vows only to improve their credit score, there is a lot of evidence that married people with children have a big advantage when it comes to calculating the credit score over single people.

Home phone line. A home phone line will make it easier for you to get accepted for a loan or personal finance. Technically there is little difference between a landline and mobile phones but lenders consider it to be a matter of commitment. Signing up for a landline means that you plan to stay in your current accommodation for some time to come.

Effects Of Balance Transfer On Your Credit Score

Credit card companies are often marketing their services with deals like 0% on balance transfers but how does it affect your credit rating? Is it damaging your credit score and effectively closing the access for any other credit facility should you wish to apply for one later? Since it has become relatively easy for people with good credit scores to get accepted for credit cards this question was causing much controversy among the consumers.

Is balance transfer a one-way road to bad credit score? While banks and other credit card issuers are very reluctant to disclose the actual impact balance transfers have on your credit score, the customer base willing to share their experience is certain that a single balance transfer transaction will not have an impact on your credit score and could even work to your advantage. For example let’s say that you have two credit cards with a limit of two thousand pounds each and are already using the maximum credit for both. If you apply and get accepted for another credit card with a limit of four thousand pounds and transfer both previous debts to the new card, you effectively free up 50% of your credit lines. This way your credit score receives a massive boost. It is however important to remember that credit cards should be used with moderation and too many opened credit facilities can make a bad impression on lenders.

How many balance transfers is too many for good credit score? There is no easy answer to this question as you need to consider your overall financial situation: are your credit cards already maxed and the balance transfer is the only way to escape large penalty fees? Do you close the old credit cards after applying for new ones? The rule of thumb is: as long as your financial situation is stable – you don’t suffer from large debt and hold no more than two credit cards – one balance transfer per twelve months will not damage your score. Juggling your debt more often than this can lead to unpleasant consequences reflected on your credit score.

How to find out if your credit score has been damaged by frequent balance transfers? The easiest and fastest to determine whether balance transfers had any kind of impact on your credit score is to check the credit report. Your credit report can be issued free of charge from any of the credit referencing agencies operating in the UK.

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