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A credit card with a $200 limit helped me to repair my credit. If you don’t believe that, it’s understandable. Most people ruin their credit using credit cards. But, as hard as it may be to believe, using a credit card is the quickest way to build credit or restore your credit if bad financial decisions or unavoidable hardship have done a number on your credit.
I somehow managed to make it to my late 20s without ever having a bank credit card. I’d heard enough horror stories from my friends about their five-figure credit card debt to be skittish about credit cards, so I lived without one for years. In fact, I only applied for a bank credit card because my credit had already been destroyed by medical debt.
When I decided to take charge of my financial life, I learned that revolving credit accounts, such as credit cards, make up a significant part of your credit score. I only had one credit card – a store credit card that had been maxed out – and I knew that in order to improve my score, I needed some way to show creditors that I could be trusted with credit. So I applied for a secured credit card, but, to my surprise, actually qualified for an unsecured card with a $200 limit. That $200 limit may sound measly, but it was more than I needed to start rebuilding my credit.
The key to using a credit card to build your credit is to use it wisely. Here’s how I did it:
Small, regular purchases.
I started out using my $200 credit card to pay for two things each month: my subscription to an online music service, which at the time cost $6.99 a month, and to buy one book, under $10 with shipping from Amazon.
Paid my bill every month.
I have never missed a payment, ever, since I’ve started on my credit rebuilding quest. In fact, I make my payments over the phone, and do so a few days before the payment is due.
Paid my statement balance in full every month.
Since I was using my $200 card exclusively for rebuilding my credit, I only charged the two items each month with any regularity. And I paid for them in full, each month.
Kept my balance well under the credit limit.
This was not a problem for me, since I was charging less than $20 each month.
Each of these four aspects of wise credit card use prove something to potential creditors. Making purchases, and therefore having a balance, is part of having credit. Paying your bill every month lets creditors know you can be trusted to repay your debt. Paying your statement balance in full is even better, because it saves you money on interest charges. Keeping your balance as low as possible tells creditors that you are smart enough not to use all the credit that’s available to you.
When I started rebuilding my credit using my $200 card, I had no idea how long it would take my credit score to begin to rebound. You can imagine how shocked I was to find that after less than nine months of my regular use, my credit card issuer upped my credit limit to $2,000. Without my asking them to, mind you.
While I am living proof that it’s possible to live without a credit card, I’m also proof positive that having a credit card is a sure-fire way to build – or, in my case, rebuild – your credit. Just as long as you use your credit card wisely, that is.