3 Ways Credit Cards Can Help (or Hurt) Your Credit Score

by Christy Bieber | Published on Oct. 6, 2021

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A person sitting at an outdoor table handing a credit card to a restaurant employee holding a payment reader.

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Make sure your cards have a positive impact on your credit score.

Credit cards can have a huge impact on your credit score. Whether that impact is positive or negative depends how you use your cards. So it's important to make sure you're using them as wisely as possible -- and that you understand how different decisions you make with your cards will affect your credit record.

Here are three key ways that your cards could either help you earn a strong credit score and make you an attractive customer -- or reduce your score and affect your ability to borrow at an affordable rate in the future.

1. They affect your payment history

Payment history is the most important factor in the credit scoring formula that's used to determine your credit rating. A positive payment history with no late payments shows that you can be trusted to fulfill your obligations and pay as promised. But even one payment that's more than 30 days late could cause your score to go down dramatically since it suggests to lenders you might not always be responsible with credit.

If you always pay your credit cards on time, this can help you develop a positive payment record that results in a high credit score. Consider setting up autopay so an accidental late payment doesn't do long-term damage to your credit record.

2. They affect your credit utilization

The second-most important factor in common credit scoring formulas is credit utilization. Your credit utilization ratio refers to the amount of credit that you use versus the amount of credit that is available. For example, if you had one credit card with a $1,000 credit limit and you charged $900 on the card, you'd have a 90% utilization ratio.

A credit utilization ratio above 30% is cause for concern by creditors who think you may not have control over your borrowing. Going above this amount can lower your score. On the other hand, the lower your utilization ratio, the more positive the impact on your credit rating.

To make sure your cards help rather than hurt your credit score, always aim to keep your credit utilization as low as you can -- and definitely don't max out your cards or exceed that 30% ratio.

3. They impact the age of your accounts

The sooner you can open a credit card, the sooner you can start developing a credit history. Credit history is an important factor in the credit scoring formula, and a longer history is better than a shorter one.

Opening too many cards at once, though, could have the opposite effect because it shortens the average age of your credit record. So be careful not to open many cards in a short period of time. You should also avoid closing down old cards, which could shorten your credit record as well.

The way you use your credit cards could have either a positive or negative impact on your credit record. Make sure you use them wisely, as your credit score affects many aspects of your personal finances. You don't want to damage it unintentionally and end up costing yourself a lot of money and hassle in the long run.

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