If you do not have a credit card or have not applied for any loan, there is no credit score for you. In this case, the score in your credit report shall be -1 or No Hit indicating that it is impossible to determine one’s credit behavior. Such is the impact of a credit card on the score, as it helps in setting up a reliable credit history if used properly. Here is how it can affect your credit score:
Getting a New Credit Card
It is common to have two or more credit cards. However, whenever you request a new card, the issuer makes a hard investigation on your credit report. It is inevitable although it reduces your credit score for some time. You can recover the score by making some regular payments.
Thus, applying for several credit cards or loans and credit cards simultaneously can bring down the score. As a result, it is wise to ensure minimum credit card applications. You should take a new card only if it is truly needed.
Further, you should consider getting a new credit card as per your purpose. For example, for the purpose of shopping, apply for a card with decent cashback. If you are a traveler, look for a credit card that gives you good miles or free offers.
Deferral Credit Card Payments
The most critical factor that affects your credit score is your payment history. So, if you are like those who miss or keep delaying the card dues, you are likely to bring down your score drastically. Any payment delay you make is informed to the officials at credit bureau agencies that track your credit score. Thus, it is wise to pay all credit card dues completely each month.
Credit Utilization Ratio (CUR)
This ratio reveals the amount used beyond the available or offered credit limit. It is zero if there is no balance or you have not used the card. In case of no balance, it becomes tough to apply for a loan, as hardly anyone would accept or sanction it.
Generally, it is advised to retain a CUR of 30 to 40%. If there is a surge, it is likely to make your credit score fall. This is because the creditors perceive this surge as a credit hungry trait. So, beware!
You can consider getting a higher limit on the card that you have if you can pay the dues well. For this, you only need to request your bank or credit card issuing agency. Alternatively, you can go for a new card featuring a greater limit. No matter what you choose, never go beyond your credit limit, especially when you feel like spending more.
Terminating a Credit Card
Just as applying for a new credit card, terminating an existing or old card can affect your credit score negatively. The reason is credit history that significantly contributes to the total score. If you are about to terminate an old credit card account, it will be as good as deleting your credit history.
A closure of such an account means no access to the credit limit due to which the CUR will fall significantly. Thus, do not rush to terminate any old card. You need to act wisely. If you feel that the card is no longer required, simply store it safely or consider reducing its usage but do not terminate it. Such a wise step will not affect your score negatively.
Applying for your first credit card is an easy way to initiate the credit history. However, you need to use it for developing a good history.