Saturday, September 24, 2022

How Credit Card Usage Affects Your Credit Score: A Step-by-Step Guide

WebVarta Desk: Your credit score is a numerical representation of your creditworthiness. It shows lenders how likely you are to repay a loan and therefore how risky it would be for them to lend you money. A good credit score can lead to lower interest rates, better financing terms, and other benefits when applying for new loans or services like cell phone plans, mortgages, auto loans, and credit cards. A low credit score can have an impact on many areas of your life.

It can make it harder for you to rent an apartment or lease a car. You may also struggle to get utilities such as gas, water, electricity and cable TV turned on at your new residence because many landlords check applicants’ credit before agreeing to lease to them. A bad credit score can even keep you from getting a job if some employers ask applicants for their credit scores before hiring them. However, there are ways to rebuild your score after a setback and get back on the road to success again:

Know What Ruins Your Credit Scores and How to Avoid It

Late payments are the biggest factor in determining your credit score. If you miss a payment, even by a single day, your credit score will likely drop by about 100 points and remain low for about 7 years. A payment that is more than 30 days late can lead to a significantly lower credit score. Failing to pay off your entire credit card balance every month will harm your credit score. You can check your credit report to see if any of the three credit bureaus have reported that you have a large credit card balance remaining. If so, you can call the creditor and request a limit increase. The average credit card interest rate is 16.87%, and those with lower credit scores are often offered higher rates. Credit card companies can also charge late payment fees and raise your interest rate when you’re late. If you want to improve your credit score, try to pay off your credit cards completely each month.

Always Pay Your Bills on Time

Late payments will lower your credit score, as mentioned above, but paying off your bills early can also lead to a lower credit score. If you have a large enough reserve (e.g. emergency fund), you can always pay off your bills ahead of schedule. This is a great way to improve your credit score. However, be sure to monitor your credit report regularly. Creditors report your payments to the credit bureaus on a 30-day cycle. You can check your credit report to see if the payment was reported on time and if it was processed correctly.

Only Apply for New Credit When You Need It

Applying for credit is a surefire way to lower your credit score, even if you are approved. Lenders will run a credit check to approve or deny your application. If your credit score is below 680, you may be denied for new credit. If you have a low credit score and need to apply for a new credit card or loan, you may not be able to obtain the credit you need. You may even be denied for an application that you would have otherwise been approved for because of your credit score. You can help improve your credit score by only applying for new credit when you really need it.

Only Use 30% of Your Available Credit at Any One Time

Your credit score is calculated using several factors, including your credit utilization ratio. Credit utilization is the percentage of your available credit that you’re using at any given time. If you have $5,000 of credit available to you and use $1,000 of it, your credit utilization ratio is 20%. A good credit score is around 30%, so you should try to keep your utilization ratio as low as possible. The higher your credit score, the lower your interest rate will be. If you’re working on rebuilding your credit score, you can keep your credit utilization ratio low by only applying for small amounts of new credit. You can also set up automatic payments to pay off your credit cards as soon as you make a purchase. This will help keep your credit utilization ratio low while you’re working on improving your credit score.

Monitor Your Credit Card Activity Monthly

You can view your credit card statements online and see exactly what purchases have been charged to your credit card. You can also set up alerts that notify you when a charge is posted to your account. If you see an unauthorized charge on your account, you can report it immediately to the credit card company. This will help stop thieves from getting away with the money they stole from you.

Final Words

Credit cards are an essential part of modern life. They can be useful tools for earning rewards, financing purchases, and covering unexpected expenses. They can also help you improve your credit score over time. However, credit cards can also be dangerous. They can tempt you into making purchases that you cannot afford and make it easy to fall into debt. If you do not use them responsibly, they can have a negative impact on your credit score.

पढ़ें देश-विदेश की ख़बरें अब हिन्दी में (Hindi News)| Webvarta की ताजा खबरों के लिए हमें Google News पर फॉलो करें |

Similar Articles

Most Popular