Clark Howard (one of my faves!) recently wrote a great article about how credit cards can impact your credit score. The whole article is great, but the bones of it are as follows:
Here are 5 ways credit cards can improve your credit scoreHaving multiple credit accounts in good standing. A low amount of credit accounts equates to a lack of credit history, so owning multiple credit cards helps. However, remember not to open too many at once, as it signals you’re in urgent need for a large sum of money at one time.Maintaining a low debt-to-credit ratio. Remember, your credit score is not only affected by the debt-to-credit ratio for each individual card, but also the total ratio of all your loans. Make sure it stays under 50%, but aim for less than 30%.If a high ratio is of concern, try asking for a credit-line increase and/or strategically split the balance between two cards. And don't close credit cards you don’t think you need anymore or don’t use often. These cards keep your available credit on the higher side, and removing one will instantly increase your debt-to-credit ratio.Making regular payments. Keep your credit cards active, but don’t overuse them. And don’t leave them completely unused either. Use your credit cards with regularity, as it demonstrates to lenders that you can responsibly manage your credit.If you have cards that are close to maxing out, pay those first. Pay monthly, even if it’s just the minimum payment to start. Make it your goal to never carry a balance. Also, if you find yourself in a situation where you need to pay down balances on multiple cards, focus paying more on the cards with which you’ve had the longest history of consistent payments.Opening a secured credit card. If you have very poor credit and no pre-existing unsecured credit cards, consider applying for a secured card. A secured credit card is issued after you make a deposit, which is typically the same amount as the credit line. This credit line is then reported to the credit bureaus, which is why paying it off regularly for as little as 6-12 months will make a drastic difference.Make sure the secured card you apply for reports to all three credit bureaus— Equifax, Experian, and TransUnion—and make sure you absolutely do not miss any payments and keep your balance at zero; otherwise, you will negate the point of owning a secured card to improve your credit score.Applying for credit cards you actually need and will use. Invest some time researching what cards you’ll likely quality for and benefit from most. For example, avoid retail-store credit cards offers that incentivize you to open an account just to initially save 25% on your shopping.On the other hand, applying for a great balance transfer card with a low introductory interest rate can build your creditworthiness by helping you decrease your debt-to-credit ratio and pay off your balance, for example. Just remember credit inquiries (i.e. when you turn in a credit card application) are added to your credit report, which can slightly lower your score if you apply numerous times in a short amount of time. This is because attempting to apply for new credit on multiple occasions indicates to lenders that you’re in financial trouble.
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