Do Credit Cards Impact Your Credit Score?

Credit Cards

Your credit score is an integral part of your life in general and not just the financial aspect. Things such as employment opportunities could depend on whether you have a good or a bad credit score. So there are a few questions you ask yourself before getting a credit card, and one of them is, does applying for a credit card hurt your credit score? Let’s have a look.

Can your credit card affect your credit score?

The simple answer is yes, but it needs a little more explanation. Many people fail to realize that even if you feel like you can afford to max out your card does not mean your credit score is immune. But on the other hand, if you spend more than you earn or keep racking up debt, your credit score will be severely affected.

According to research, high-income earners are just as prone to negative credit scores as low-income earners are. So when you get used to maxing out your credit card, lenders will often view you as someone who lives beyond their means or has poor financial management.

Is there such a thing as too much debt?

There is no direct answer to this question as different people have different salaries and credit card limits. So, there is no universal number that will tell you whether you’ve gone over the limit or not. So there is a rule that you should at least keep your debt level below 30% of your income.

Some people decide to take more than one credit card to spread their debts across them. This is not the wisest decision considering their different card companies have different fees and terms and conditions. So when you take out a new card, the company carries out a hard inquiry or a check on your credit score, which could further drive your credit score.

How does consolidating affect your credit score?

When trying to pay your credit card debt, some people choose to consolidate all the debt on one card. They can either have low interest or could have zero interest if they are running one of those promotions where they offer forgiveness on interest rates.

Once you consolidate all the debt, you can cut up the cards to ensure you are not tempted to use these cards again. If not, you can keep the accounts open to help in improving your aggregate utilization.

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How to manage your debt

Getting your debt to manageable levels or reducing it helps make your credit score better. For example, you can pay it off in large chunks to clear it out faster or find a repayment plan and stick to it properly. Even if you do not clear it out, reducing it will positively impact your credit score.

Sometimes, avoiding debt is not an option, but practicing sound financial management skills like paying off your debt gradually could go a long way in maintaining a good credit score. Of course, you can always consult the experts at SoFi for their advice on having a good credit score.

 

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