How Credit card affect Credit score?

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Credit cards undoubtedly are great tool to give you financial freedom. But, at the same time, it comes with great responsibilities as well. How you use the card have a huge impact on your overall credit scores. Thus, it won’t be wrong to term credit cards as double-edged swords. So, if you’re planning to get a card or already having one, it is important to understand what factors of a credit card affect credit score.

Available credit limit – It is exciting to have higher credit limits, but at the same time, it is also essential to understand its impact on your credit scores. Your available credit limit basically helps analyzing your financial capacity. It is a determinant factor to evaluate your creditworthiness. So, if you’re already having a credit card, it is advised to ask for higher limits as it will reflect better financial capacity of yours and thus, would have positive impression on all your future dealings.  

Credit utilization – As mentioned above that credit cards are like double-edged swords, it is important to manage the perks and privileges responsibly, otherwise this will have a direct impact on your financial standing. Therefore, even you have higher limits available, make sure to keep the utilization below 30%. This can be done by keeping an eye on monthly spending and avoiding irrelevant expenses.

Overdue balances – How much you owe to credit card companies have a huge impact on your credit scores. Outstanding balance you carry on your credit cards is reported to the credit bureaus and makes for a major portion on your credit report. Thus, it is advised not to carry heavy balances for subsequent month. Instead, make a habit of paying off the dues in full every month and not just the minimum balance. Your overdue balance is just another factor to determine how credit card affect credit score. In addition, paying outstanding dues in full will also save you from paying hefty penalty charges. It may be noted that credit card interest rates are quite high and have a potential to put a whole in your financial standing.

Number of credit cards – It’s enticing to have multiple cards to shop indefinitely for your favorite stuff. Though, this could have a direct impact on your credit health. Having too many cards at the same time could give an impression of credit hungry and thus, lenders could resist sanctioning you a new line of credit. Hence, instead of having so many active cards, it is best to evaluate your lifestyle needs and have just one or two cards to fulfill your specific requirements.

Balance transfer – Though most of the credit cards come with a balance transfer facility, it is best to know the impact before opting for it. No doubt, balance transfer facility helps you save some good amount by transferring the dues at lower annual percentage rate (APR). But, on the other hand, you would also be hurting your credit utilization ratio and credit score as well.