How Credit Cards Impact Your Credit Score

Image text: Credit card

Alt-text: Credit report
Image Description: Credit cards in a jeans pocket


Credit Card Usage and Your Credit Score

Credit score comes more into play than many people realize. And while it's certainly possible to live without a credit score, it’s not always very easy. You may need your credit score if you are applying for a new credit card, renting an apartment, looking for a mortgage, getting vehicle insurance, and in some cases applying for a new job. The better your credit score is, the easier these things will become for you.

So, where do credit cards come into this? How you use your credit cards and how promptly you pay them off can have a significant impact on your credit score. Even the number of credit cards you have and for how long you have them can affect your score. Some credit card habits that can result in a good credit score are:

 Keep your utilization ratio low. If your credit limit is $20,000 and you use about $5,000 of it, your utilization ratio is 25%. A utilization ratio of 30% or less is considered safe. It's taken over the course of 12 months, so if you have spent more in one month, spend less in the subsequent months to keep the average down.

·        Don’t apply for new credit cards unless absolutely necessary. Every new credit card application triggers a credit score check. And more credit checks can negatively impact your score.

·         Pay your credit cards well on time. Raking up interest on your unpaid credit card is not only a bad way to manage your finances; it also impacts your credit score.

·         Don’t close credit cards with unpaid payments. Your delinquent credit card payments will stay in your credit history and lower your credit score.

·         Put your monthly bills on your credit card. It will help keep your credit utilization in check and build a better credit history.

You are eligible for one credit report a year from all three of the country’s major credit firms. Ask for them, and keep an eye on how your credit cards are affecting your credit score.

Subscribe to receive free email updates: