Maintaining a good credit score is key to keeping your personal finances in good health. With a strong credit score, you’ll be more likely to qualify for home, school and auto loans, and have access to better interest rates when borrowing money. A good credit score can even impact your insurance premiums and your ability to rent an apartment, and help you get better terms on your internet or cable contracts.
There are many aspects to maintaining a healthy credit score, but one of the most important factors is credit cards – how many you have, how many you’ve applied for, how much you owe and how consistent you’ve been in paying your bills on time.
Understanding the relationship between credit cards and your credit score is key to building the best possible foundation for your finances; now, and in the future.
The first thing to know is that applying for a credit card will affect your credit score, in a few different ways. On the one hand, having a credit card is an easy way to start building good credit – but on the other hand, opening unnecessary accounts could backfire if you’re not regularly paying off your credit card balance. Be especially wary of cards that offer an initial sign-up bonus or discount, but then charge sky-high interest rates thereafter. In general, the more debt you owe, the worse your credit score.
Keep in mind that every time you apply for a credit card, that inquiry is added to your credit report; so when your credit worthiness is being evaluated, that information may be a point of consideration. Only apply for credit cards that truly meet your needs, and be cautious of applying for multiple cards in a short period of time.
How do you know when you’ve found the “right” credit card? It should be one that offers great rates and simple terms, without hidden fees. HUECU, for example, offers consumer-friendly credit cards with no annual fee; plus cash back rewards including 3% cash back on gas, 2% cash back on groceries and 1% cash back on everything else.
Consolidating multiple credit cards into one credit card can be a good option in terms of supporting a healthy credit score and potentially lowering your monthly payments. If you find a great credit card, you can opt for a balance transfer which moves your balance owed from multiple cards onto one card; reducing your number of monthly payments and making it a little less hassle to maintain a healthy credit score. If possible, save money by choosing a credit card that offers no fees on balance transfers, such as an HUECU credit card.
Another important point to remember when it comes to the relationship between your credit cards and your credit score, is that using up all your available credit isn’t a great idea. To potential lenders, maxing out your credit could look like a sign that you’re not a responsible borrower. Instead, aim to use around 30% of your total credit limit, cumulative, across all the credit cards you hold. That will help to keep your utilization rate low and your credit score healthy – not to mention save you money, because you won’t be accumulating high interest charges on a larger-than-life credit card balance.
If you’ve got some big purchases coming up but you’re nervous about using up too much of your credit limit, an easy option is to ask for a credit limit increase. That way, you can use more credit while technically keeping your utilization rate the same, or lower than before. However, be cautious of not overextending your spending just because you now have a higher credit limit.
While you should be careful about how you use the credit cards you have, it’s actually not a good idea to close an old or unused credit card. This is because cancelling a credit card could have a negative impact on your credit score. It’s much more beneficial to your credit score to simply pay off whatever balance remains on the card, and stop using it. Having an available line of credit with no balance attached to it can actually help your credit score; and besides, you might need this line of credit at some point in the future. If for some reason you do need to cancel a card, your best option is to pay off the balance in full or transfer it to a new card, and speak directly to your bank to ensure your balance is zero before you close it out.
If you’re uncertain about the best way to build credit or you want to learn more about your credit score, hop over to HUECU.org to learn more. With good credit card habits and a bit of credit knowledge, you’ll be well on your way to building and maintaining healthy credit to help shape your financial future.