Credit Cards to Improve Credit Rating

Understanding the elements that make up your credit score will help to build your confidence about using your credit cards appropriately. Creditors are looking for consumers who know how to handle their finances responsibly. By using your credit cards wisely, you'll see a boost in your credit ratings and you'll feel in control of your money.

Opening a Credit Card

For those who don't have a credit card, opening an account helps to add to credit diversity, which makes up 10 percent of your credit score. Having installment loans, such as a mortgage or car loan, and credit cards shows that you are capable of responsibly handling your debt. If you don't qualify for a traditional credit card at first, you may build up your credit by using a store or gas card. Otherwise, you can get a credit card that uses money you've deposited into an account as collateral, called a secured credit card. Once you build your credit through these cards, you will qualify for a traditional credit card. Don't apply for more than one card at a time, or else you'll look desperate. Leave at least a couple of months between applications.

Payments

The number one thing you can do to improve your credit rating is to consistently make on-time payments to your credit cards and other bills. The timeliness of your payments accounts for 35 percent of your credit score, which is the biggest category in your score calculation. An easy way to make sure you make your monthly due dates is to set your accounts up with automatic payments so that you don't have to think about scheduling individual payments each month.

Balance

The amount of debt you're carrying makes up roughly one-third of your credit score, so paying down your credit card balances helps to boost your score significantly. The Better Business Bureau recommends keeping your balance to 25 percent of your card limit, or less if possible. Motivate yourself by paying off the card with the lowest balance first, so that you can see your payments impacting the debt faster. Or save money on interest by paying off the card with the highest interest rate first.

Use

You need to use your credit cards to keep your credit score healthy; it's just using them irresponsibly that gets you into trouble. If you stop using a credit card, the creditor may stop reporting your account to the credit bureaus, since there isn't any activity to report. Bankrate writer Leslie McFadden recommends using each card once every six months to keep it active. Just make sure you keep your balances low, or that you pay off the balance completely each time.