Credit cards are a convenient payment tool due to the comfort they can give to their users (making them able to avoid bringing much cash when outside home), safety (as they are generally insured against frauds) and convenience (as most credit cards offer perks and rewards, in addition to the fact they allow people to manage their expenses, budget them and then paying them all at a specified date. Finally, credit cards are also a good way to borrow money when you need it for some reasons. Are credit cards also good for building your credit score? The answer is surely positive, still, there are various reasons why this payment tool is among the best alternatives you have to build your financial reputation.
Why building credit score is important
A general good behavior should be to avoid debt whenever you can, unless you have a strategic reason why you are going to make debts (for example, in case of a zero interest installment, it is surely a good deal to keep money as an emergency fund without paying it all at once). In general, less debts means less interests to pay and less stress when managing your finances. Still, life can be unpredictable and having a good credit score is always a good idea in general, even if you are quite sure you are not going to borrow money in your future. A good credit score is like an insurance you may never need in your life, still, it is something that it is still better to have rather than not having it: if you are already used to make debts, having a good credit score is surely essential in order to increase chances a loan is approved to you and, maybe, at an even better interest rate than what offered to people with lower credit score.
You can build your credit score in several ways
You can actually build your credit score by choosing among different financing opportunities: loans, credit lines and credit cards are surely three among the most popular ones you can evaluate at the beginning, while a mortgage may be the final choice you are going to make only when your credit score is already stellar, so that you may benefit from a better interest rate. Still, while building credit score is something useful and that can be considered an insurance for when you need to financing an important expense in the future (like, as written before, a mortgage) and don't have enough money, it is clear that one is not going to make debts and pay interests just for building credit score. It is not financially worth to pay interests on a debt only for this reason, in fact debts are generally made when one doesn't have money to afford something (unless, again, we are talking about making debts at a certain interest rate and investing capital in something that gives more than that interest rate, still one has to know very well what they are doing in this particular case). With that in mind, it is generally not financially strategic to save a certain capital for a planned expense, then go for a loan instead of using your already available money, just for the reason you want to build credit score.
A good strategy to build your credit score while you are not currently in need of a loan is to take advantage of specific offers. For example, if you need to change your phone and you have the money to afford it, but the retailer from which you are going to make your purchase offers a promotional zero interest financing service, then paying your phone in installments is going to cost you zero and you still build credit score.
When it comes to build your credit score by exploiting special offers, it is clear that you are not going to do it so often, unless you constantly buy new phones, cars, tech or other things that some shops are used to offer also by paying on installments. Here we come to the reason why credit cards may be your additional good opportunity for building your credit score, with potentially no costs either.
Why are credit cards good for building your credit score
Credit cards are good for building your credit score because, if they are used responsibly and not with the idea of making debts on debts (so a usage that comes closer to the one you would make of your debit card), they can end up cost nothing to you. It is clear that many credit cards are released for an annual fee, still there may be also free alternatives on the market, maybe with less perks or rewards. When it comes to paid credit cards, one can also evaluate if they can get more in terms of perks than what they're going to pay for an annual fee. If you don't generally spend much, in order not to be tempted to overspend and make the most of a credit card (even if you don't really need it), a zero fee card with no or very little rewards can be a bigger deal than you may imagine, as sometimes rewards can make people spend even more than what they really need, just in order to get an extra perk.
When it comes to credit cards, there are also two additional aspects to be considered:
- if you live in the USA you may already be used to own a credit card, as in that country this is by the way the most popular payment method: if you are regularly using it, you are already building your credit score and you don't need to look for other financing opportunities if you don't actually need them other than for improve your financial reputation;
- if you use your credit card responsibly, or even if you are used to pay with a debit card (so by making no debt in advance) but sometimes decide to use the credit card too (it may be even once a month, just to make the minimum usage that builds credit history) and clear your balance in full the next month, you are generally going to pay zero interest, so in this case building your credit score has no additional costs for you.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Alessio Ganci