• Brandon Ramsey

How Credit Cards Affect Your Credit Score

When it comes to achieving a high credit score, credit cards can be a double-edged sword. Depending upon how you use them, you can increase your score dramatically or suffer a precipitous drop.

Credit cards typically weigh more heavily on credit scores than other types of debt because they give greater insight into how you make borrowing and debt management decisions, says Rod Griffin, director of public education for credit scoring company Experian.

Everything you do with a credit card affects your credit score from applying to a credit card to using one. Even not having a credit card can affect your credit score.

Opening credit card accounts

Whenever you apply for credit, card issuers run a credit check. The higher your credit score, the more likely you are to pay your bills and the lower the interest rate will be on your new card. A large number of credit inquiries in a short period can lower your credit score since research shows that people who are looking for credit are more likely to get into financial trouble than those who are not.

Not Having a Credit Card Affects Your Credit Score

If you're one of many consumers who doesn't have a credit card, your credit score could be affected. That's if you have a credit score at all. Without open, active accounts on your credit report, you won't have a credit score. Not having a credit score makes it difficult to be approved for a mortgage, car loan, or even an apartment.

Credit cards are one of the easiest types of credit accounts to be approved for which makes them a good option for establishing and building a good credit history. If you manage your credit well, your credit score will reflect that.

Your Credit Limit and Balance Information

Many credit cards have a preset credit limit, which is the maximum amount of credit your credit card issuer has made available to you. Using all your available credit makes you look like a risky borrower and your credit score will suffer because of it.

Many credit card issuers also report a "high balance" which is the highest balance ever charged on your credit card. So, even if you max out your credit card and pay it off, your credit report can still show that high balance. It's best to keep your credit card balance below 30 percent of your credit limit so you don't look like an irresponsible borrower.

Your Monthly Credit Card Payments

Your last credit card payment amount is listed on your credit report, but it's not factored into your credit score. Even so, your payment amount can indirectly influence your credit score. Remember that your balance relative to your credit limit is included in your credit score. Larger payments reduce your balance faster and can help boost your credit score.7

The timeliness of your credit card payments is one of the most important factors influencing your credit score. On-time credit card payments help boost your credit score while late payments will bring your credit score down.

On most types of accounts, late payments aren't reported to the credit bureaus until they're 30 days late. You might have to pay a late fee if you're a few days late on your credit card payment, but your credit score should be safe as long as you pay before you're 30 days past due.

Credit Card Applications

Each time you apply for a credit card, a record of your application goes onto your credit report. Your credit score doesn't factor in whether you're approved for the credit card or not, but making the application can have a negative effect on your credit score. It's best to keep your credit card applications to a minimum.

Making late credit card payments

One of the most damaging habits you can have is failing to pay your bills on time. Your payment history makes up 35 percent of your FICO score and is the most influential factor in your VantageScore. If you’re making late credit card payments — or not making payments at all — your score will suffer. But if you always pay your bills on time, you can give your score a boost.

Understanding how credit card usage affects your credit score is only useful if you apply it to your specific situation.

When you purchase a credit score, it will come with an analysis of which factors most affect your score. For example, it might tell you that you have a lot of credit card debt or point out that you have multiple late payments. Once you have that information in hand, you can make the recommended changes.

One of the keys to a high credit score is using credit cards responsibly consistently over a long period of time, Griffin says. “There is no quick fix.”

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