Your credit score can have a significant impact on your ability to get a mortgage, job or insurance products. How you manage available credit is one of the primary influences on your credit score. If you have credit cards, it’s important to understand how they impact your credit score and how to use them responsibly. In this PDS blog, we explore exactly that.
How Credit Cards Impact Credit
Credit cards can impact your overall credit situation in a number of different ways. For instance, if you use more than 30% of your available credit, your score will be negatively impacted
Making minimum payments more than 30 days past the due date can also result in a significant decrease to your credit score. In addition, you’ll be hit with late fees and additional interest that can make it harder to pay off your balance in a timely manner.
Paying Them Off on Time
The ability to make timely payments is 35% of your overall credit score. In other words, paying the minimum amount due by the due date is the easiest way to maintain a quality credit score. Many credit card companies offer autopay and other options to help you keep up with your obligations.
Late Payments
Missing a credit card payment is a breach of your agreement with the lender. Therefore, your credit score could drop for a single payment that is 30 days past due. Further consequences might be imposed if you don’t pay within 60, 90 or 120 days. After 180 days, your balance is charged off, which is another black mark on your credit report.
Having a Balance
Maintaining a balance is rarely a good idea as it accrues interest and increases your minimum monthly payment. In addition, credit utilization is 30% of your credit score. Therefore, even if you make payments on time, carrying a balance can have a negative impact on your credit score and creditworthiness.
Does the Number of Credit Cards Affect my Credit Score?
The short answer: it depends! Having multiple trade lines on your credit report can help your score and overall creditworthiness.
In addition, adding more credit cards may increase your amount of available credit, while also improving your credit mix. Of course, the more credit you have, the easier it is to overspend and get into a debt trap. Ultimately, you should focus on using your cards responsibly as opposed to wondering how many credit cards should I have in my wallet.
Do Business Credit Cards Affect My Credit Score?
As most business credit cards require a personal guarantee, business credit cards will generally only affect your credit if the card is not paid back in time. Otherwise, merely having a business credit card – while making consistent and on-time payments, has no impact upon your personal credit score.
Credit cards can be a powerful tool to help you establish your credit score and creditworthiness. In most cases, it only takes one card that you pay off each month to establish yourself as trustworthy with debt. It typically takes at least a year to convince lenders that you can handle your debt, but it may take several years before you truly reap the rewards of your actions today.
