How can you learn better credit card management after bankruptcy?
Using credit after bankruptcy is an intimidating experience for many people. If credit cards were the reason they got into financial trouble in the past, they might prefer to avoid credit in the future. But not using credit at all after bankruptcy does very little to improve your credit score.
If you want to improve your credit after bankruptcy, you’ll need to practice smart credit card management.
How do you do this?
View Credit Cards as a Credit-building Tool
Credit cards might be marketed to you as a way to purchase things you cannot afford. Avoiding this approach ensures credit doesn’t come back to haunt you.
Instead of using credit when you don’t have cash, consider credit cards a building tool. Don’t buy things you can’t afford with credit. Instead, use a credit card to make your purchase something for which you already have the cash.
Let’s say you want to purchase a new pair of shoes. The credit industry might have you believe that you can put those shoes on a credit card and pay a little bit each month until they you’ve paid the entire balance. But the secret is you’re paying far more than the original cost of the shoes because of interest.
This doesn’t mean you shouldn’t use a credit card to buy the shoes. Good credit card management is about using your cards, but doing so responsibly.
You should use your card to buy the shoes because it helps you build your credit score. Instead, you should wait to purchase the shoes until you have the cash to pay for them. But when you buy them, use your credit card. When the bill arrives, or before if you have access to pay online, use the cash you saved for the shoes to pay the credit card bill. Do so before the credit cycle completes and you’ll pay the same price for the shoes without interest.
Be Self-Disciplined in Your Credit Card Management
Using credit responsibly takes work for some people. In some cases, even those who want to be responsible with credit cards slip up because they don’t know about the formulas used by creditors and credit bureaus to calculate your score.
Here’s a simple rule of thumb: Do whatever you can to keep your credit card balance below 30 percent of the total available credit. This means if you have a credit limit on a card of $1000, you should never have more than a $300 balance.
Ideally, you’ll keep the balance below 10 percent ($100 in the example listed above), but this isn’t always possible.
Creditors want you to have a significant chunk of credit available to use. Running up your balances, even if you pay on time or stay below the limit, hurts your credit score. A lot of people don’t realize this and are left wondering why their credit score isn’t that great even after following the rules. Once you know the “secret” numbers used by creditors it will all make more sense.
Keep Tabs on Your Credit Report
Unfortunately, you can’t always rely on creditors and the credit bureaus to do what you expect them to do. Mistakes happen all the time on credit reports and if you want to manage your credit effectively, you need to monitor what’s going on with your report.
It’s simple to review your credit reports nowadays by checking them online. It also helps to request an official copy directly from the credit bureaus about one time a year. If you notice any errors or mistakes, contact that credit bureau and request that the problem be corrected.
To learn more about viewing your credit report, check out this information.
Good credit card management and rebuilding credit after bankruptcy take time. You can’t rush the process, but you can be diligent and practice smart management.