Mistakes to Avoid with Credit Builder Cards
Credit builder cards can be a great tool to improve your credit score, but only if used correctly.
Many people make common mistakes that can actually harm their credit instead of helping it. Here are the key mistakes to avoid when using a credit builder card.
Missing Payments
One of the biggest mistakes is failing to make on-time payments. Payment history accounts for 35% of your credit score, and even a single missed payment can hurt your progress. Always set up automatic payments or reminders to ensure you pay at least the minimum due each month.
Carrying a High Balance
Credit utilization is another critical factor in your credit score. Ideally, you should keep your balance below 30% of your credit limit. A maxed-out card can signal financial distress and negatively impact your score. Try to pay off your balance in full every month to avoid interest charges and improve your credit profile.
Closing the Card Too Soon
Many people make the mistake of closing their credit builder card as soon as their score improves. However, closing the card reduces your available credit and can shorten your credit history, both of which may lower your score. Instead, consider keeping it open with occasional use to maintain a strong credit history.
Applying for Too Many Cards at Once
Each time you apply for a new credit card, a hard inquiry is added to your credit report. Multiple inquiries within a short period can lower your score. Focus on using one credit builder card responsibly before considering other credit options.
Ignoring Fees and Interest Rates
Some credit builder cards come with high fees and interest rates. Always read the terms carefully before applying. Look for cards with low annual fees and avoid carrying a balance to prevent high-interest charges.
Using the Card for Unnecessary Purchases
A credit builder card is a tool to improve your credit, not an excuse to overspend. Stick to small, manageable purchases like a monthly subscription or groceries, and pay off the balance each month.