So, you are advised to have some specific credit cards to improve credit score. It is a good advice. Credit cards can play a significant role in increasing your credit score. However, credit cards are also known for causing serious damage to the credit when the card holder falls short of paying credit card balance. Credit cards leave a high impact on your credit score as it tells how you manage and pay off debts. 35% of your FICO score is based on the way you handle your debts. Credit utilization rate is another factor affecting your credit score.
How can you use credit cards to improve credit?
Your credit card might offer you the easiest way to fix credit. When you are using a credit card to purchase something, you are establishing a credit history. Lenders often look into the credit history to find out whether the consumer is paying bills or not. So, purchase using credit cards and pay off on time. Make sure your credit card is paid off each month. This will improve your credit utilization rate.
How your credit card can affect your credit score?
If you use your debit card or you have not used a credit card before, you should establish your credit history especially when you have no other debt such as an auto loan. Payments made using debit card do not contribute to your credit score.
When you are in need of a mortgage to buy a home or some other loan, lenders will look into your revolving and installment credit. Installment credits include auto loans, student loans, and mortgages. There are benefits of having higher credit score and longer credit history. Getting a loan at lower interest rate is one such benefit. So you can be debt-free sooner.
How your credit card can hurt your credit score?
People usually resolve to using credit card when they run low on money or when they are not employed. Your credit utilization is raised when you use too much of the available credit. Having too many credit cards with all having high balances, your credit score gets affected. Your credit score is lowered in case you miss a credit card payment. So, be careful while using your credit card and credit limit because your financial status changes with time.
When you apply for a new credit card
Do some research before you apply for a new credit card. You can use your credit cards to improve credit score. Not every credit card will be the best for you. The decision of applying for a new credit should be based on your current credit score and your spending habits. Apply for a rewards credit card in case you travel a lot. Sometimes, you do not qualify for some credit cards offering a lower interest rate because of your low credit score.
What are the advantages of credit cards?
First of all, you can use your credit card whenever you want.
You will receive cash back or rewards on purchases.
You can use your credit card with retailers, at a gas station or shop online as these cards are more immune to frauds as compared to debit cards.
Credit cards offer travel insurance, purchase protection, and a few other benefits.