If Your Credit Score Is Lower Than You'd Like, a New Credit Card Could Help Fix It. Here's How

Read this if you're hoping to improve your credit score.

Your credit score is used in many financial transactions, from taking out a personal loan or getting a mortgage to renting a property or buying insurance.

If your score is lower than you would like it to be, this can cause a host of problems including denials of credit, higher borrowing costs, higher insurance rates, higher deposits for utilities, and even lost employment opportunities.

The good news is, there are ways to turn your situation around. In fact, depending on what the cause of your low score is, it's possible opening a new credit card could actually be helpful. Here's why.

A new credit card can potentially help your credit in a few different ways

In certain circumstances, a new credit card could make it possible to improve your credit score by correcting issues that are dragging your score down.

The situation where this could be most helpful is if you have a low credit score because you don't have much of a credit history. In this case, opening a new card and using it responsibly can make it possible to show you can borrow and pay back your debts. Your positive payment history could steadily improve your score over time.

If you are using a lot of your available credit, then a new card could also help. Your credit utilization ratio (credit available versus credit used) is a key factor in determining your credit score. Ideally, it should be 30% or less if you don't want to hurt your credit. If you open a new card and have a $0 balance on it, this can help improve your ratio.

Having a mix of different kinds of credit is also important to your score, so if you don't already have a credit card, opening one could help with this factor as well.

What kind of credit card could help?

If you don't have great credit and you want to try to open a new credit card to improve your situation, you may find you have difficulty finding a card issuer who is willing to give you a chance. This is one of the hardest things about trying to fix your credit. You need to be able to borrow to show you can do it responsibly and to raise your score.

The good news is, there are cards out there specifically targeted for people with no credit or low scores. Many of them are secured cards, which means you put down a deposit equal to your credit limit. It's very easy to qualify for these because the lender doesn't assume any risk, and you can apply for one to start enjoying the credit-building benefits it offers.

Just be sure you understand the card's terms and conditions, avoid fees, and confirm it reports to the credit reporting agencies. And, be sure to use it responsibly because a new card will only help improve your credit if you develop a positive borrowing history with it.