How Credit Cards Affect Your Credit Score
Credit cards are your friend or foe, all depending on how you use them. So here’s a quick look at the main ways credit cards may hit your score – and tips on how to manage this situation.
1. Payment History: A Single Factor
Your payment history forms 35% of your credit score. In other words, it has a big impact on the score. Regular, on-time payments boost your score, and one missed payment can be very hard to recover from.
Tip: Ask payment reminders to be sent to you, or use automatic payments to avoid missed payments.
2. Credit Utilization Ratio: Keep It Low
Amount of what you owe/your available credit limit is termed as your credit utilization ratio. Maintain this utilization rate below 30% so that you score well.
Tip: Keep a check on your usage every month by paying off the balances.
3. Length of Credit History: Older Accounts Help
The longer you’ve had credit accounts, the better this is for your score. Closing old accounts can shorten how long your credit history is and may damage your score in the process.
Tip: Keep the older accounts open, even if you don’t use them often.
4. Credit Types: Mix Your Players
Some other credit types- like credit cards and loans-will help your score. But try to avoid opening new accounts unless you need to.
5. New Credit Inquiries: Don’t Make Too Many Applications
Every credit card application results in a “hard inquiry,” which can temporarily reduce your score, especially if done very often.
Tip: Apply for new credit only when you really need it.
6. Balance Transfers and Debt Settlement: Know the Impact
Closing old accounts will also hurt your score, as will settling for less than you owe on a debt.
Tip: Make sure that balance transfers and debt settlement plans have enough financial benefit to
Manage these aspects of credit-card carrying well to enjoy a flexible and healthy financial future.