Before thinking about ‘where can I apply for a Credit Card,’ you need to think about credit score and the consequences it brings. Your credit score is a major factor that plays a vital role in deciding your creditworthiness. It helps the lender understand whether you qualify for a loan or a Credit Card. Your credit score directly impacts your financial life. This is why understanding how you can build and maintain a good credit score is an essential part of managing your borrowings.
Owning a Credit Card can have its fair share of pros and cons especially when it comes to obtaining a high credit score. You can either increase your credit score to a great extent or suffer a steep drop. It all depends on how you use your Credit Card.
Credit Card utilization and its resulting impact on your credit score
In simple term, Credit Card utilization rate refers to the manner in which you are using your Credit Card. It can also mean the amount of your credit account balance when compared to your available credit. Holders of new Credit Cards need to understand this concept well.
Determining your credit score is done by taking into account several components. This includes your payment history, credit mix, the amount of new credit you have, credit utilization rate and duration of time you have had credit accounts. Bettering your credit utilization can positively impact your credit score in a big way.
How Credit Cards impact the credit score
More often than not, owning a Credit Card is good for your credit score. Credit scoring systems have to understand whether you are capable of handling different kinds of debt. At the time of applying for a Credit Card, card issuers run a credit check. The higher your credit score, the more likely you are to pay your bills. This also means lower the interest on your new card. A number of credit inquiries in a short period of time can drastically lower your credit score.
In addition to this, there are other factors too.
- Owning multiple Credit Cards: Having numerous Credit Cards can lower your credit score. This is because; it is an indication of the high debt you are already carrying. Closing your old credit cards can also lower your credit score to a great extent since it means you are reducing your overall available credit. The only way to stop this from affecting your credit utilization rate is to minimize your spending.
- Delayed payments and non-payments: This aspect also plays spoilsport. It plays a significant role in negatively impacting your credit history and lowering your credit score. Developing a good credit score involves having a good repayment history.
- Not using your Credit Card: Not using your card does not mean a lower credit utilization rate. On the contrary, not conducting transactions on your card makes your credit file inactive. This, in turn, brings down your credit score.
Ways to lower your credit utilization rate
There are many ways in which you can reduce your credit utilization rate and improve your credit score. Here are a few ways you can do so.
- Ask for a higher limit on your credit accounts: When Applying for Top Credit Cards, you can request a higher limit on your credit accounts. In this way, even though your account balance is the same, your credit score can increase owing to your low utilization rate. You need to make sure that a higher limit does not lure you into spending more.
- Pay more than the minimum required amount: You can pay down your balance by making more than the minimum required payment amount every month. A higher balance negatively affects your credit score, so it is always best to keep your credit utilization rate as low as possible.
- Get a new Credit Card, utilize it once/twice and pay off the balance in full: Qualifying for more credit means you can use an increase in available credit to lower your utilization rate. Making sure you responsibly use this increase in credit is the key. Since your total balance does not change, your utilization rate decreases. This helps your credit score in a big way.
Having a good credit score is imperative. This is because borrowers with lower credit scores eventually end up paying more on interest when compared to individuals who possess a higher credit score. So when signing up for a Credit Card, knowing the proceedings that go on with credit utilization rates and how it can impact your overall credit score is essential.
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