Have you ever wondered what kinds of things are actually reported on your credit? When we choose to make our bill payments on time, does our credit score reflect that hard work? What about those subscriptions services that so many of us are members of? Paying your bills and subscriptions on time is essential to maintaining a good credit score, but maybe not in the way that you think. We’ll show you how you can use payments like these to your advantage in order to increase your credit score over time.
What Kinds of Things Are Reported on My Credit?
Anything that requires a credit check in order to apply for it will be reported on your credit, like credit cards, student loans, car loans, home loans, and more. Essentially, if you’re borrowing money from a bank or other institution, it’s being reported to your credit. Every time you make a payment on time, that piece of information is sent off to your credit report and will positively affect your credit score.
Let’s stop and talk for just a second about what a credit score is. Your credit score is made up of a history that includes many pieces of information like the one mentioned above. Each piece of information has their own story to tell about what loan (or company) it’s attached to, when you made the payment, if it was on time, and how much you still have to pay off. All of that information is weighed by the credit bureaus when your score is calculated.
You should also understand that payments that do not require a credit check can still negatively affect your credit. Unpaid subscriptions, for example, could be sent to collections, which will be reported on your credit. The same goes for many other recurring payments like rent, utilities, and cell phone bills. It’s your responsibility to make your payments on time. If that doesn’t happen, the company waiting for payment from you may decide to take action and send your total to a collection agency in order to try and recover their losses. That’s when you could see a negative effect on your credit.
How Can I Use Subscriptions to My Advantage?
Those with no credit, little credit, or bad credit might want to know how to get their score into a higher range. Building up good credit takes time, but if you’re working towards your next financial stepping stone, it’s a good idea to take the time to get your score in a good place. For example, if you’re thinking about buying a new car, but you don’t have any credit, it might be a good idea to work on your credit for six months or more and increase your score. By doing so, you’re more likely to be approved, and the bank will probably trust you with more money (as long as your income allows it). Initially, you might have either not been approved at all or approved for a much lower loan. If you’re looking to buy a car that will last you years, it’s worth it to invest some time into bumping up your credit score.
So, how do I do that with subscriptions? I would suggest signing up for a credit card. Credit cards are a great way to build your credit, and you can completely control what types of things are charged to your card. You can sign up for a card that has a low balance if you’re not ready for a higher one yet and charge your subscriptions to that card. The next step is to pay them off quickly and do it all over again.
Basically, you’re charging small amounts to your credit card and paying it right back, which might initially seem pointless, but it actually shows a lot about your financial ethics to the bank. It shows that you can keep the balance low on your credit card, pay it off in a timely manner, and can be trusted with a certain limit of credit. Doing that with a smaller loan, like a credit card, proves to the bank (and the credit bureaus) that you’re ready for more responsibility — a larger loan.
What Kind of Credit Card is Best for Subscriptions?
As I mentioned, a credit card with a low credit limit is a great way to start. It lowers temptation for maxing out the card and it offers you less stress when it comes to paying it all off. Not to mention, lower limits are easier to be approved for.
Those with bad credit or no credit might want to look into secured credit cards first. Secured credit cards require a deposit in order to use your line of credit, which means if for some reason you can’t pay, the bank is covered by your deposit. These are the easiest credit cards to be approved for and they usually come in low credit limits of around $250 and up. Again, starting small is a great idea when you’re just starting to work on your credit score. This way, you know that you can handle the payment no matter what.
In addition, having a credit card open at all times is a smart way to bulk up your credit history with positive occurrences. No matter what your current loan situation, credit cards are a good way to reinforce your solid financial habits that are being reported on your credit. If you’ve received a credit score bump because of your positive credit history, you might also be able to receive an increased limit on your credit card. Increasing your credit card limit, while keeping the total balance low, will make an even larger impact to your credit score over time.
It’s all about the steps you take. Don’t rush yourself and do anything that you’re not comfortable with yet. Start small with a low limit credit card to pay your subscriptions with, then think about increasing the limit once you’re more comfortable. Keeping your credit card balance low, in addition to paying off any other loans you might have will improve your credit score over time. No credit score is made perfect overnight and learning with small charges, like subscriptions, can help teach you about building your credit and make you more confident in budgeting your finances. In the end, taking steps like these will help get your credit score in the right place for that next big financial milestone.
Looking for more tips on how to use your credit card for maximum benefit? Look no further than our credit card resource center. Need more information on your credit score? Check out the credit score learning center.
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