Building credit is often easier said than done, like most financial things in life. Here’s why:
To build credit, you typically need a loan or a credit card.
But to get a loan or a credit card, you usually need credit.
See the problem here? 🤔
The system makes it hard for anyone without credit to get a good credit card. Most bank “starter cards” have low credit limits, high interest charges, and high fees – some, like secured cards, even make you put down a deposit. All of that can be expensive, and that’s before you even have the opportunity to build credit.
Whether you have a secured credit card, Petal credit card, or some other type of credit card, using a credit card responsibly is an easy way to build good credit. Here are a few other things to keep in mind:
Pay on time, every time
Payment history can account for 35 percent of your credit score, so it’s crucial to stay on top of payments each and every month. On that steady, uphill climb to amazing credit? One bump in the road (like a missed payment) can change your course.
What’s worse is that severely late payments can end up on your credit report for an extended period of time. Remember accidentally swallowing gum and fearing it would stay in your stomach forever? That’s (thankfully) a myth, but late payments stay on your credit report for up to seven years – no myth.
Have a credit limit of $2,000? Lucky you – but did you know that if you spend the full $2,000 each cycle, you could actually hurt your credit score instead of helping it?
You should aim to use less than 30 percent of the total credit line you have across all of your credit cards at any given time. This shows the #CreditGods⚡that you can handle their IOUs responsibly.
Don’t Get Greedy
The phrase “everything in moderation” applies to more than just the temptation of Friday afternoon office donuts.
When you submit an application for a credit card, the credit card issuers generally perform a hard inquiry – also known as a hard pull. The term ‘hard inquiry’ refers to when a potential lender (in this case, the credit card issuer) is reviewing your credit, because you’ve applied to open a line of credit with them. Any hard inquiry, even one where you are approved for the card, has the possibility of lowering your credit score. It is unlikely to cause a lasting, negative impact to your score as long as you limit the number of credit cards (or loans) you apply for in a short timeframe.
Multiple hard pulls in a short amount of time can be a red flag and inaccurately classify you as a high-risk credit user – so take it slow. Whether we’re talking 💳 or 🍩, moderation is key.
Insider tip: We generally recommend to apply for no more than one card every three months, and think about waiting six months if your wallet already holds a handful of plastic.