With the advent of technology in today’s world, cashless transactions are becoming more and more popular. Credit cards and Debit cards are becoming a go-to for any big and small transaction. However, having a credit card is not enough; there are certain things one needs to keep in mind before using this method of transaction. Credit cards have something that is known as credit scores. Credit scores depend on how one uses the credit card. The way someone uses their credit card can have a significant impact on their credit scores. The credit card score depends on a few things like how responsibly the card is being used and how prompt the payments are.
How does someone’s credit score get denoted?
Credit scores influence what kind of card you will be eligible for. In the beginning, the credit scoring systems check to see if you are a responsible borrower. If one has a good credit score, they can be approved for the whole range of credit cards available in the market and vice versa, provided that they meet the minimum acceptance criteria like residential status and salary level. To start with, owning a credit card is good for your credit score. Nonetheless, once you get the credit card, some things affect the credit score as well. The way you handle different types of debt like revolving loans and installment debt, later help calculate your credit score using FICO score. Further explained below are some credit card habits that influence your credit card score:
Closing credit card accounts
Anyone who has ever witnessed credit card debt and managed to clear it off, closing the credit card accounts they no longer use, is usually their next step so that they do not run up those balances again. However, this might not be a good decision as it can negatively impact the credit score. Closing the account will make you have less available credit which can further cause the credit card utilization ratio to go up. Nevertheless, one of the best ways to improve your credit score is by clearing all the debt and not closing your account. This will leave the account as a revolving account and will also give you more utilization rate.
Running up high credit card balances
Although credit cards are considered to be a very powerful financial tool, they can seriously hamper your score if too much of the credit available is used. It is seen that the amount of debt carried on your cards accounts for 30 percent of your FICO score. Along with that, it also has a significant impact on the Vantage Score. This was a scoring model which credit scoring companies such as Equifax, Experian, and Transunion created. So, if you think you can’t pay the credit card balances in full form on a monthly basis, you should try and keep your balances at a minimum. Utilizing more than the given 30% can severely hurt your score.
Making late credit card payments
This is considered to be one of the most harmful habits if you are a credit card owner. Failing to pay your credit card bills on time can have a huge impact on your credit score as payment history makes up for 35 % of your total FICO score and is the most influential factors in your Vantage Score. So it is pretty clear that being late in paying the credit card bills will have a huge impact on your credit score. However, making timely payments can also help give your score a boost. One practice which can help you avoid miss credit card payments due to a busy schedule or forgetfulness is to use auto pay feature or a credit card management app. You can click here to avail these benefits.
Mentioned above are a few situations which can significantly affect your credit scores. Understanding how using your credit card influences your credit score can be very useful when applied in an apt situation. However one should know that getting a high credit score can be a time-consuming process and there is no quick fix.