Can Credit Cards Affect Your Credit Score?
How Credit Cards Affect Your Credit Score
Can credit cards affect your credit score? Yes, the can and they do. If you have credit cards or if you’re just thinking about applying for one, it’s important to understand how credit cards affect your credit score and we’ve got the information you need to know.
Applying for a Credit Card
Each time you apply for a credit card, an inquiry posts to your credit report. Now while an inquiry or two here or there won’t have a significant impact on your credit score, having too many inquiries can. That being said, only apply for the credit that you need and the credit you know you can get.
Paying Your Credit Card Bills on Time
Paying your credit card bills on time will have a positive impact on your credit score. Each time you pay your bill on time, your credit card company reports it to the credit bureaus, contributing to an increased credit score.
Making a Late Payment on a Credit Card
If you make a late payment on your credit card, it’s going to show up on your credit report and it’s going to negatively affect your credit score. Because of this, it’s vitally important that you pay your credit card bills on time each and every month.
Closing a Credit Card Account
Closing a credit card account isn’t always a good idea. Closing a credit account can cause you to decrease your credit score because you’ll be shortening the length of your creditor relationships and will be increasing your debt to credit available ratio.
Having an Open Account You Don’t Use
Having an open account you don’t use can be just as bad as closing a credit account you do use. If you don’t use the credit card at all, the credit card issuer might even stop reporting your activity at all. Therefore, make sure if you have open credit card accounts, you use them at least a little bit each year. This will ensure that your credit score remains optimal.
Paying Off Your Balance in Full Each Month
Paying off your balance in full each month should be a good thing, but things get tricky when it comes to your credit score. On your credit report, when you pay your balance off in full each month, all it’s showing is the amount that you owed at the end of the month and whether or not you paid on time, not that the balance was paid off, so creditors might think you’re carrying that balance on your credit card.
To make things easier, pay off the balance in full each month and then don’t charge to the credit card at all every other month or so. Then your credit report will show a zero balance, showing that you paid off the credit card.