My Credit Score: How do Credit Cards Affect It?
My credit score – What is that? In case you are unfamiliar with it, here is the basic definition: “a number lenders assign to you to show how risky of a borrower you are.”
The number is usually between 300 and 850, and the higher the better. Lower numbers hurt you because you may be denied a loan or you may get a higher interest rate. Having a high number is important, especially if you are thinking of buying a house someday.
The numbers are reported by three primary agencies: Equifax, Experian, and Transunion. Equifax and Transunion use the Fair, Isaac and Company method of scoring your credit, which is why your credit score is sometimes referred to as your FICO score.
What Determines Your Score?
First, your payment history makes up about 35%. Put simply, this is whether you made your bill payments on time. Please note, this includes whether you made your past credit card payments on time.
Next, the amount of money that you owe determines 30%. Other smaller factors include “new credit” (newly opened accounts—you do not want to have too many), what kinds of credit you have, and the length of your credit history.
How Do Credit Cards Affect Your Score?
Credit cards can affect it in the following ways:
1. If you are paying your credit card bills late, this will affect it negatively.
2. If you have too many credit cards, or you have very high balances on your credit cards, this will impact your score negatively.
3. If you open new accounts all the time, this also hurts you. Try to resist opening new department store credit accounts simply for the “free gift” or 20% off.
You have the right to check your credit history. You should check it regularly for faulty information.
Be aware that a good or “prime” number is considered 680. Consider the impact on your score before you get into credit card debt.
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