Using a Credit Card can have either of positive and negative effects. They may have the power to bury you under the pressure of immense debts, but they can also create wonders in your life by potentially improving both the credit report and credit score. But that can only happen if the dues incurred from credit cards are cleared at the time. If they are not paid handsomely and in time, then they will not only make the credit score worse but also put one under the pressure of debts.
Credit scores are essential decision-making tools that lenders use while lending money to understanding how likely the person will repay the loan. A good credit score opens access to bigger loans.
Having a credit card is a responsibility. So people having credit cards have to be conscious when they are using credit cards and why they are using the credit cards. They should swipe their credit cards to only make those purchases that they can afford to pay later in the given timeline. Most importantly, one has to be mindful of how having credit cards can impact their credit score. Everything they do with their credit card can affect their credit score - from applying for a credit card to using the credit card - and even how they are using the credit cards - or how many credit cards they already have.
Ways to Improve your Credit Score
with Credit Cards?
For people who own one or more than
one credit cards, they should most importantly know ways to improve your credit
score with the help of credit cards.
- Credit Limit & Balance Information: Most
of the credit cards have a credit limit, which is the maximum credit or
the maximum amount, the credit card issuer has made available to you.
Using all the credit cards at once lowers the credit cards and makes the
person a risky borrower with less creditworthiness. Many credit card issuers
report a ‘high balance’, i.e., the highest balance ever charged on the
user’s credit card. That’s why, even if the user reached the highest
credit limit but paid that off soon in the given timeline, still the high
balance will reflect in the credit report affecting the credit score. It’s
always safer to keep the card balance below 30% of the credit limit,
instead of exhausting all the credit limit and reaching the highest
balance.
- Monthly Credit Card Payments: The last credit card payment amount is always listed on the credit report itself. Even
though the credit amount directly influences the credit score. Quick and
timely payments can reduce the credit balance faster and will improve the
credit score. The timeliness of credit card payments is one of the most
critical factors that can influence the credit score. Credit card payments
at the right time can boost the credit score, while late overdue payments
can reduce the credit score and reflect less creditworthiness. In case of
late payments, there’s another disadvantage that a late payment fee adds
up to the already due credit balance. But your credit score can be safe
only if you pay the credit card bills every month, i.e., in the 30-days
time limit. Just like an electricity bill or phone bill comes every month
and the credit card bill also comes every month with a due date and has to
be paid before the due date only if you want to keep a good credit score.
- Credit Card Applications: Each time someone
applies for a new credit card, the details get added to their credit
report. Rejections of credit card application have a negative impact
on credit score. Putting several credit card applications in a short
amount of time shows the desperation for external funds and makes you a
risky borrower . For this reason, it’s best to avoid applying for too many
credit card applications in a short span of time..
- Several Credit Cards: Having too many credit
cards can affect your credit score. There’s no exact limit of possessing
credit cards, but too many can affect the credit score.
Other than all these factors, if the person doesn’t have a credit card at all, if that can affect the credit score negatively. So it’s always essential to have one credit card at least which should be appropriately maintained.
Final Words
The longer one can keep maintaining
credit cards correctly, the better it is for their credit score. It’s always
good to use the credit cards responsibly and keep the credit utilisation within
30% of the credit limit to maintain a good credit score. But also one should
make sure they pay their bills timely and swipe the card only to make those
purchases that are affordable for them. The key to keeping a good credit score
with the help of a credit card is to keep them active and pay bills on time,
with a low outstanding balance.
