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How Credit Cards Influence Your Credit Score

August 9, 2018

A credit card comes with plenty of perks. Not only does it offer great rewards in the form of cash back or travel miles, but it even has the ability to pull you out of temporary liquidity crunches. Nevertheless, what people tend to forget is that this seemingly innocent piece of plastic can be a double-edged sword. If not used responsibly, it can completely damage your credit score. Everything that you do with a credit card has an impact on your credit rating – from applying for a card to closing your account. In fact, even not owning a credit card can influence your score! For your benefit, we’ve compiled a list of the ways in which a credit card may boost or damage your credit.

  1. Owning a credit card: Most lenders like to see that the borrower can handle various types of debt responsibly. It is always wise to have a good mix of both revolving debt (such as credit cards) and installment debt (for example, a mortgage) on your credit report. The most popular credit scoring model, FICO, assigns 10% of weight to this factor.
  2. Applying for a credit card: Applying for any sort of credit results in hard inquiries, and too many of these in a short period of time can ding your score. This is because it signals to lenders that you are in desperate need of credit and may end up defaulting on payments. Nevertheless, once you obtain a credit card, it can have the opposite effect and may even boost your score. A new card will increase your credit limit, consequently lowering your credit utilization ratio, i.e., the amount of available credit that you have used up. The lower your credit utilization ratio, the better the impact on your credit score.
  3. Using a credit card: If you tend to run up high balances, it may damage your credit. This is because the amount of debt you carry accounts for 30% of your FICO score. Thus, you should always try to pay your balance in full each month. If you cannot afford to do so, at least try to maintain a credit utilization ratio that’s below 30%. Anything more than this could hurt your score.
  4. Paying on a credit card: Credit cards payments should always be made on time, as your payment history accounts for 35% of your FICO score. Most likely, payments that are less than 30 days past due will only attract a late fee. However, any late payments made beyond this timeframe can be reported to the credit bureaus and may hurt your credit score.
  5. Closing a credit card: Many cardholders are tempted to close their credit cards because they no longer use them. In fact, some consumers even close their accounts because they can’t stay away from the temptation to swipe! However, this action can have a negative effect on your score for two reasons. Firstly, it reduces your available credit, consequently increasing your credit utilization ratio. Secondly, it reduces the average age of your accounts - another important determinant of your credit score. Thus, if you’ve had a positive payment history with a certain credit card, it is generally better to keep it open to help your score.  

As long as you use your credit card wisely, you’ll find that it is an excellent tool for boosting your credit score. A good score comes with a multitude of benefits – not only can it get you loans at extremely low interest rates, but it can also get you a lot of cash! In fact, at Fund&Grow, our team helps clients with good credit obtain as much as $250,000 of unsecured credit at 0% interest which can be converted into cash. Available for a period of 6, 12 or 18 months, this amount can be used for anything – from funding a small business to providing a down payment on a property. So, what are you waiting for? Call us at (800) 996-0270 today, and we will try to help you make your financial dreams come true!


Ari Page Ari Page is the CEO of Fund&Grow. He resides in Spring Hill, Florida with his wife and two children.

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