Using A Credit Card To Improve Your Credit Score

CreditSoup Staff

Updated On: October 14, 2022  •  3 Minute Read

Credit Basics, Credit Cards, Financial Tips

Using A Credit Card To Improve Your Credit Score

Building credit is a lifelong process. Your credit score goes up and down regularly, depending on how you use your credit. Even people with excellent credit need to work to keep it in good shape. If you’re considering using a credit card to improve your credit score, these tips can help you make the best choice.

How Do Credit Cards Affect My Credit?

Credit reporting agencies weigh various types of credit differently. You may have read that credit cards are not a good way to build credit, but this isn’t necessarily true. A report with a combination of credit types is best — including mortgages, car loans, student loans and credit cards.

If you are a younger adult or are trying to establish your credit in the first place, credit cards could be the fastest and easiest way to start. A solid record of repayment on your credit card bills can help boost your credit score.

Can Using Credit Cards Help My Credit Score?

Some people argue that credit cards are only to be used for the worst emergencies, but this isn’t exactly true for your credit, either. Your credit score consists of an algorithm that puts special emphasis on:

• Length of your credit history
• Your record of timely payments
• How much you owe in relation to your available credit
• Mix of credit types
• New accounts on your record

If you open a credit card account and never use it, it does not help in the same way as a person who uses a credit card regularly and pays it off on time.

Is It Wise to Open a New Line of Credit?

Opening new credit accounts make up a small portion of your credit score. The way you use credit is a much bigger factor. It’s called “credit utilization” and is measured as a percentage. Less debt does not always mean better credit. In some cases, it may make more sense to have a couple of credit cards with available balances. Someone who has one card with a $500 limit and $400 on the account has a credit utilization of 80 percent. Another person who has $10,000 worth of credit and $5,000 in debt utilizes credit at 50 percent, which may give him or her a higher score. People with more available credit also avoid increasing their credit utilization as much when they make a purchase.

How Can I Avoid Hurting My Credit Score?

Of course, keeping multiple credit cards for spending has to be done carefully. People who rack up too much debt could turn their credit utilization against them. If you end up with more debt than you can reasonably pay back, you might start missing payments. That may hurt your credit even more.

Opening a new credit card to transfer a high-interest balance from another card could decrease monthly payments and credit utilization, both of which may improve credit scores. However, you have to make sure you don’t accidentally fill the old card with debt, now that it’s available.

What Is the Best Credit Card to Build Credit?

If your credit is good, you probably have a long list of options of credit cards eligible to you. The best credit card to build credit is the one that allows you a decent amount of flexibility and doesn’t charge you a fortune in fees.

Ideal features include:

• No annual fees
• Low fees for balance transfers
• Competitive interest rates
• Benefits or discounts for using the card

Just remember not to apply for too many cards at once, and plan to use all of your cards regularly.

Your credit score could change at any time, and the way you use credit cards may help you to control it. Ready to start using a credit card for your benefit? Apply for a credit card today.

Sources

https://www.nerdwallet.com/blog/credit-cards/credit-card-raise-credit-score/

https://www.bankrate.com/finance/credit-cards/use-credit-card-to-improve-credit-score.aspx

https://www.wikihow.com/Use-a-Credit-Card-to-Improve-Your-Credit-Score

https://www.creditcards.com/credit-card-news/help/5-parts-components-fico-credit-score-6000.php