Credit cards besides traditional loans are the best way to build your credit score. Paying on time is the most important factor in keeping a good credit score in terms of your credit cards. If you are using most of the limit of your credit cards you might see a drop in your credit score. Failure to pay will only increase interest rates as your credit score drops.
Credit utilization has a huge impact on your scores and it is based on the ratio of your credit card limits when compared to your balances. Below are a few more facts about understanding how your good credit card utilization percentage and how it impacts credit:
- Around 30 percent of your credit score is based on credit utilization and current debts.
- Using up all of the credit that you are allotted will drop your score. Your credit card company after a few payments on time for the full credit limit could increase your credit limit significantly.
- Your credit score drops when using all of your credit limit as your credit score reflects how likely you are to pay back a loan. Owing significant amounts combined with late payments can wreck a credit score for the foreseeable future.
- Spreading out your spending on multiple cards is wise for those that have multiple credit cards. One credit limit being hit is worse than half the limit being put on two cards.
Other Factors that Impact Credit
Your debts or bills that have been sent to collections will lower your credit score. Notes that you owe money to various collection agencies will indicate to credit bureaus that you are less than reliable when it comes to paying on time. Improving your credit can easily be done if you are not living above your means. You need to pay off current debts with a strategy in mind as paying off a high-interest credit card bill is more important than a utility bill from an old apartment that has been sent to collections.
The following are tips to start boosting your credit score:
- Run a credit report so you can see if there are any errors as this happens more frequently than many people realize. With the ability to look up transactions online proof of payment is easier than ever.
- Take out a credit card that you plan to pay monthly without reaching its limits. Taking out a few might drop your credit score for a bit but paying off multiple credit cards per month in full will put you on the fast track to a good credit score.
- Budget so you can pay off certain debts. You will need to prioritize bills associated with your income like that of a car loan as without a car you might have trouble getting to work.
There are all types of factors that are going to impact your credit score. Make sure that you aren’t hitting your limits on your credit cards if are in the market for a loan like that of a mortgage. Credit scores matter immensely when it comes to your financial health.