Five Easy Ways to Use Credit Cards to Improve your Credit Score
When used correctly and responsibly, your credit cards can do wonders for your FICO score. And we all know that a good FICO score goes a long way towards obtaining other types of credit and loans.
It is therefore crucial that you understand the ins and outs of credit cards and the many ways in which they can affect your credit score.
You can damage your credit card score if you:
- Don’t use your credit cards – You must use your credit cards – at least a few times a year – for them to be recognized as available credit on your FICO score. And your available credit makes up about 30 percent of your FICO score. It is therefore important that you exercise your credit cards regularly – even those credit cards that are put aside for emergency purposes.
- Close out your credit cards - Many credit card holders believe that they are helping their credit score by closing out unused credit cards; however, the act of closing out unused credit card accounts lowers an individual’s credit score because it lowers his or her percentage of available credit. A simple solution is to cut up the credit cards you no longer use, but keep the accounts open.
- Apply for credit too often – Every time you apply for a credit card it is recorded on your credit report. Therefore, if a number of credit inquiries from credit card companies appear on your credit report your credit score will likely be affected, particularly if you are routinely being denied credit. The solution: if you are experiencing trouble getting credit, order a copy of your credit report (which is free if you have been denied credit for any reason) and work to repair the problems which are standing in your way of obtaining credit.
- Don’t make your credit card payments on time and in full - This may seem like a no-brainer, but many credit card holders don’t see an occasional late payment or partial payment as a big deal. The fact is, however, that even occasional missteps on your credit report can have a big impact on your ability to obtain credit and to obtain competitive interest rates.
- Run up high balances on your credit cards – Once again, the amount of available credit makes up about 30 percent of your FICO score. Therefore, as you charge up your credit cards your available credit begins to dwindle, along with your credit score. The solution: make an effort to pay down credit card bills before applying for any type of consumer or business loan.
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