Having a credit card is actually a huge responsibility. While it does come with the freedom to tap and go and worry about the costs later, many people end up paying for this in interest down the track. However, if you manage your credit card properly, it can actually help out your credit score.
Are you wondering: do credit cards affect your credit score? Read on to discover all the benefits that come with holding a credit card and how it can give your credit score a boost in the process.
Taking Out A Credit Card
Taking out a credit card can seem like a great idea. It gives you access to large amounts of money, so you can pay bills, head off on holidays and more. Of course, this money needs to be repaid and if you have overspent beyond your means, then paying it off becomes tricky.
Instead, you end up accruing interest that you can’t pay off and going further and further into debt. If you are wondering do credit cards affect your credit score, then the answer is yes. But it isn’t all bad. If you take out a credit card and manage it responsibly, then it can actually affect your credit card in a positive way.
How Do Credit Cards Affect Your Credit Score Positively?
Your credit score is a number that is calculated based on what is in your credit report.
Wondering how do credit cards affect your credit score positively? We have the answers. Taking out a credit card is a smart way to boost your credit score, but you do need to be responsible about it. If you’re wondering how do credit cards affect your credit score, here are some ways it can work in your favour:
- Builds your credit rating: taking out a credit card is a great way to build your credit rating. If you make sure that you are borrowing within your means and meet all the monthly payments, then this will reflect well on your credit score. In turn, it will help you when it comes to taking out larger loans down the track that rely heavily on your credit score. If the potential lender can see you have a good borrowing history, they are more likely to take a chance on you.
- The different types of credit you have: a credit card is one type of credit available. The more types you have, the more positive it will be on your credit score. This is why taking out a credit card can actually help you. It diversifies your credit and will show up in your credit report.
- Builds history: once again, strong credit history goes a long way in helping out your credit score. If you can take out a credit card and keep it open for the long term, while meeting all the repayments on time, this will reflect well on your credit score.
How can you use a credit card responsibly?
You need to pay off your balance in full each month during the interest-free period. This will have the added benefit of not being charged interest and having, even more, to pay off. The best way to manage this is by setting up automatic payments, as this a sure way to avoid those late fees.
By sticking to a budget and being aware of how much you are spending each month, you have the chance to manage the process and have a positive impact on your credit score. With a good credit score, you can apply for loans down the track and get access to the funds you need.
How Do Credit Cards Affect Your Credit Score Negatively?
At the same time, if you aren’t responsible and careful when you take out a credit card, then it can have a negative impact on your credit score. Here are some ways a credit card can work against you:
- The number of credit applications you have made: if you apply for a number of different credit cards and are denied, then this is noted on your credit score and will affect you negatively.
- Too many credit cards: at the same time, having too many credit cards can affect your credit score as well. There is no set figure to this, and it likely will differ from person to person.
- The amount of money you have borrowed: if your credit card limit is $10,000 and you are using this entire limit, then you are deemed as having a high credit utilisation ratio. This suggests you are borrowing beyond your means and will affect your credit score.
Is A Credit Card Right For Me?
Are you wondering whether a credit card is the right solution for you? Have a chat with the team at Clean Credit. We will take a look at your individual circumstances and offer the right advice for you.