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.
"The consumer determines how much they're going to charge and how
much they're going to pay each month, so there's that element of
free will that you don't have with other types of debt," Griffin
While every credit scoring system has its own unique model,
here's how some common credit card habits can make or break your
In general, owning a credit card is good for your credit score.
Credit scoring systems want to know that you can handle different
types of debt so they look for a mix of both revolving debt (loans
such as credit cards that are open ended and have a variable
interest rate) and installment debt (loans such as car notes that
are paid back at regular intervals over a set period of time). Your
accounts for 10 percent of your FICO score, the most popular
scoring model, which lenders use to determine your credit risk.
If you don't have a credit card, it is possible to show that you
are a responsible borrower and build a good credit score if you
have a mixture of other types of loans, such as mortgages and car
notes. However, if your goal is to get as close as possible to the
of 850, your chances would be better if you "get one good reward
card that fits your lifestyle and use it responsibly," says Anthony
Sprauve, a spokesman for FICO.
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. While opening new credit card accounts may cause only a
temporary drop, it could make a difference if in that same period
you're trying to make a major purchase such as a car or a
However, opening new credit card accounts can also have the
opposite effect. One factor that helps to determine your score is
the amount of debt you have relative to the amount of credit you
have, which is called the
credit utilization ratio
. The less available credit you use -- or the lower your credit
utilization rate -- the better. So if you have $500 in credit card
debt and a $1,000 total credit limit, your credit utilization ratio
is 50 percent. However, if you open another card account, which
raises your total credit limit to $2,000, your credit utilization
ratio drops to 25 percent, which could help your score. That's what
happened to Elysia Stobbe of Jacksonville, Florida. When she opened
a new credit card account, she had more available credit and "it
brought my score up about 60 points," she says.
Closing credit card accounts
If you've ever dug yourself out of credit card debt, you may be
close credit card accounts
you no longer use so you won't be tempted to run up those balances
again. But that could hurt your credit, points out Nessa Feddis,
senior vice president of consumer protection and payments for the
American Bankers Association. Closing an account could cause your
credit utilization ratio to rise since you'll have less available
credit. So if you can't trust yourself with the card, instead of
closing the account, you may choose to simply cut up the card or
put it away in a safe deposit box instead.
Running up high credit card balances
Though credit cards can be a powerful financial tool, they have the
potential to damage your score if you use too much of what's
available to you, says
Christopher Viale, chairman of the
Independent Credit Counseling Agencies
The amount of debt you carry accounts for 30 percent of your
FICO score. It also has a big influence on the
, a scoring model created by credit scoring companies TransUnion,
Equifax and Experian. If you can't pay your credit card balances in
full from month to month, try to keep your balances as low as
possible, says Sprauve. "When you get up above utilizing more than
30 percent, that begins to hurt your score," he adds.
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.
Putting the knowledge to work
Understanding how credit card usage affects your credit score is
only useful if you apply it to your specific situation. There's no
universal strategy, says Griffin. What hurts one person could help
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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