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How to Start Your Credit Card Journey - Building Your Credit

If learning about how credit cards let you travel for free made you excited, but didn't know where to start, you came to the right place.

From the numerous amounts of credit cards to choose from, we always need to start somewhere. The first thing to keep in mind is your credit score. If you don't know your credit score, we recommend you start with the basic credit cards first and work your way up towards the premium cards. By having these basic tier credit cards, using them responsibly and paying them off will help you build up your credit. The higher your credit is, the higher

your chances are for approval. We recommend looking at each credit card to see what their approval ratings are before applying for the card.

Before we get into some basic credit cards, let's first take a look at what makes up your credit score.

Your credit score is broken down into 5 main parts: Amounts owed, Payment History, Credit History, New Credit, and Credit Mix.

Payment History (35%)

The first thing any lender wants to know is whether you've paid past credit accounts on time. This helps a lender figure out the amount of risk it will take on when issuing you a new line of credit.

Amounts Owed (30%)

It is normal to have amounts owed on your credit card; however, it is important to make sure you pay your statement balances on time. One thing many people talk about is utilization rates.

Here is an example. You currently have a $10,000 line of credit, but each month you seem to max out or get close to your credit limit (let's say you use $8,000) when your statement balance is due. This is known as a high utilization rate which will lower your credit score. If you only utilize $3,000 of your $10,000 credit line, then lenders will see you as "less risky" and your credit score will tend to go up. It is recommended to keep your utilization rate at less than 30%; the lower the better.

One way to maximize your credit while keeping a low utilization rate is by paying off your credit card before the statement is due. By paying off your statement before it is due, you can keep an extremely low utilization rate.

Credit History (15%)

This is made up of your average credit card history length. It takes account on how long your credit accounts have been established, including the age of your oldest account, the age of your newest account, and an average age of all your accounts

New Credit (10%)

Research shows that opening several credit accounts in a short amount of time represents a greater risk—especially for people who don't have a long credit history.

Credit Mix (10%)

This score is made up of your outstanding credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.

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