A list of detailed ways in which credit cards improve or decrease your credit score is “How Credit Cards Affect Your Credit Score”. Everyone is talking about credit scores nowadays. A lot of people still try to figure out how credit cards affect your credit score.
There are a lot of factors that affect your credit score, and the most common one known is the credit card factor. Some people get credit cards for the sole purpose of building credit so that they can get better rates on loans in the future.
How Credit Cards Affect Your Credit Score
Credit scores are assigned by credit bureaus like TransUnion CIBIL and Experian based on the information furnished by the lenders. It is a record of your loans accounts and credit cards and helps other lenders in judging your ability to repay the loan you seek.
Your credit card issuer also shares important information related to your overdue balance, available credit limit, payment history, etc., and all of these, along with the details of other loans you have taken, make up your credit score. Let’s take a look at some of the ways credit cards affect your credit score.
Having A Credit Card
Just having a credit card is enough to start your credit journey. Anyone who does not have any open credit cards or active loan accounts will not have a credit score. Not having a credit score may come as an obstacle when you wish to take bigger credits like a home loan, car loan, or even a personal loan.
Since credit score is a mirror of credit behavior, the bank would not be able to judge whether people without credit scores could make regular repayments or not. There are several other factors that come into play but the credit score is the first thing that the lenders look at. Even if you get approved for a loan without a credit history, you may not be able to negotiate a better rate of interest.
Your Available Credit Limit
Your credit limit is the maximum amount that the bank has made available to you after judging your financial capacity. At any given point, you cannot spend above this limit and if you do, you will have to pay hefty charges. As you make purchases on your card, this limit gets decreased by the amount of your purchase and as you make payments, the available limit increases. It is not a good practice to max out your credit cards as it will increase your credit utilization ratio. A high utilization ratio translates to bad credit score.
Your Overdue Balances
The balances you carry on your credit cards make up a major portion of your credit score. But how it affects your score is a tricky thing. If you keep paying the minimum amount due every month and rolling the balance over to the next month, it is not considered a late payment.
So, your credit score will not be affected in this case. However, when you roll over credit, you are adding to your own financial burden in the coming months which may be difficult to pay off at once. More research can be done on Google.