Sunday, 23 February 2020

Do some credit cards build credit faster than others?

Do some credit cards build credit faster than others?
06 Aug
5:36

hey I'm Adam Jusko from ProudMoneycom and in this video we're gonna talk about whether some credit cards are better than other credit cards for building credit

But before we do that I would ask you to please subscribe to our YouTube channel if you have not already and if you have already I thank you for doing so So, are some credit cards better for building credit? Is it better to have a bank credit card versus a store credit card, or a secured credit card versus unsecured credit card? Or maybe vice versa? Is it better to have certain types of credit cards when you are trying to build credit? That is the question for this video, and the answer is sort of yes and no, or no and yes, and I will tell you what I mean by that Iin terms of the types of credit cards that exist out on the market, none of them is necessarily better for building your credit If you are using store credit cards to try to build your credit, that doesn't mean that those are somehow worse than having a card from a major bank like a Visa, MasterCard from Chase or Citibank or whatever So there's nothing intrinsically worse about having those cards

Some people would tell you that that they they are worse, that somehow they're reported differently and they're looked at differently I've never seen any proof that that is true In the same sort of light, Ive never seen anything that says that having a secured credit card is somehow really different from an unsecured credit card in terms of building your credit, so if you had to put a deposit down to get a secured credit card versus an unsecured card that didn't require a deposit, doesn't mean that somehow you're building credit at a slower pace than someone that has an unsecured credit card So that is the good news, right? Now, that said, in practice it's not always necessarily true and so this is where we get into the "no" part of the equation So in terms of

are they all the same? Yes, in a way they are But the way they are different is in the fact that bank credit cards generally are going to give you higher credit lines than a store credit card or a secured credit card that requires you to put a deposit down and you get a credit line that's equal to that deposit — generally you're going to get a much smaller credit line from that store or secured card than you are from an unsecured card And the reason that matters is because if you have higher credit limits, when you make purchases, you are using a smaller percentage of the total available credit you have, right? So if you have a bank credit card that generally is going to have a higher credit limit, when you make a purchase you're going to be using a smaller percentage than when you have a store credit card or a secured credit card that has much smaller limit

you're going to be using more of that For example, say you have a Visa from Chase or Bank of America or whoever, and it has a $10,000 credit limit If you go out this month and you spend $500 on that credit card you're only using 5% of your available credit

So your debt ratio in comparison to your available credit is very low Now think about a store credit card or a secured credit card They might only give you a $1000 credit limit So say you go out and you use that card and you spend $500 on it Well, what have you done? You've used 50% of your available credit

So in terms of how these things get reported to the credit agencies, if you're when your score is being calculated, even if you pay your credit cards off every month, there is a component that looks at how much of your credit is being used Even if it's being paid off

So if you have lower credit lines and you're using more of them, even if it's the same amount in terms of actual dollars in comparison to someone else that has higher credit lines, it's going to look worse for you So in that way having bank cards can help you build credit faster But it's not because they are bank credit cards, it's because they generally are giving you higher credit limits and so you are using less of your credit when you use them, assuming everything is equal in terms of how you would spend with one versus the other And so that means that it looks better on your credit report, but there's nothing so intrinsically different about the two They're both being issued by banks and they're both being reported to the credit reporting agencies in almost all cases — if you have a very small store credit card and you're not sure you can even call the credit agencies or call the credit card itself to find out if it's being reported — but in general they are on equal footing

But with those higher credit limits from the major bank cards, that means you're gonna be using less of your overall credit So that is it Thanks for watching Please go to ProudMoneycom where we offer other personal finance news and tips and we do credit card reviews and all sorts of other fun stuff too

Thanks for watching again Bye

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