How Your Credit Card Health Can Improve Your Credit Score

Author Nickels
Read time 4 minutes read time

Every day people make big and small purchases using their credit cards. No big deal, right? After all, that’s how credit cards work. But can those daily swipes be tanking your credit score? If you aren’t careful, the answer is YES! Wait, don’t hit the panic button and cancel all your credit cards just yet… lets dig a little deeper into the relationship between your credit card and your credit score.

Your credit card health is one aspect of your overall credit worthiness, but it can be a relationship deal breaker – that is, as far as your credit score is concerned. And just like our relationships IRL, maintaining a healthy partnership between your credit card and your credit score requires some work and a bit of effort. So, what does all this mean for you? It’s relatively simple, if you use your credit card the right way, pay more than the minimum, always pay on time, and control your balances, you’ll be speaking your credit score’s love language. The flip side of that is, if you aren’t doing all those things then your credit score could need some relationship therapy.

Phew! This is getting intense, but don’t worry, help is on the way. There is a delicate balance between too much credit, not enough credit, and just the right amount of credit. The key to finding that balance is understanding how your credit card transactions impact your credit score.

To swipe or not to swipe? Here are four things you should know before answering that question

Money in the bank isn’t enough

Your salary, savings and disposable income have no impact on your credit score. But your credit card spending does. If you regularly max out your credit card(s), even if you pay the balance every month, you are increasing your overall credit utilization and that’s not great for your credit card health. So, you may want to think about spreading large purchases out over the year.

Remember the number 30

When it comes to credit card spending, you want to keep your utilization to 30% or less, anything higher could negatively impact your score. To calculate your utilization rate, add up your total credit card balances and compare that number to your total credit card limits and do the math (or check out Credit Card Coach for help). If you are using more than 30% of your overall credit limits, consider paying down your balances. If you can’t, then your next best option is to not increase your balance. So put the cards away and make a plan for getting your balances down – and ultimately paid off.

The details, it’s all about the details

Whether you want to improve your credit score to purchase a new home, or to achieve a personal goal, you’ll need to understand how your score is determined to create a plan for success. Your credit score is calculated based on five factors: payment history (35%), amounts owed (30%), credit history length (15%), credit mix (10%) and new credit (10%). While you’ll want to be in good standing in each of these categories, when you’re mapping a plan to improve your credit score, you might want to consider starting with the top two – credit utilization and payment history.

Maintenance is easier than repair

Having to repair your credit card health isn’t the end of the world, but it won’t happen overnight. The best way to ensure your credit score stays in the green zone is to do regular check-ins. Evaluate your monthly spending, review your credit history annually and adapt. If you’re managing your credit card utilization and paying your bills on time every month, you’re already 65% of the way to success.

If you find that you are still struggling to pull your score in the right direction, despite your best efforts, it may be time to call in a financial expert. There is no shame in asking for help. The fact that you’re here means you are dedicated to getting it right and sometimes that means bringing in the experts to analyze your spending and budget and to help map out a roadway to healthier credit.

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