Impact of Credit Cards

Credit card utilization accounts for 30% of your credit score! This can have some of the biggest impact on your score month to month. Often times, there are misconceptions regarding best practices on how to use credit cards. Here are some commonly asked questions.

How many credit cards should I have?

We recommend having two active credit cards. It is important to work towards at least one open card as quickly as possible. Please keep in mind that applying for a credit card will cause a drop in score due to a new inquiry being added to your report. To help avoid multiple inquiries, we recommend applying a single time for a Secured Credit Card. Our team is always happy to help follow up with additional recommendations if the first application is denied.

How much should I spend on my card?

The credit bureaus want to see that you are using your card, but don’t want you to be dependent on the line of credit. This means that any balance on your card over 50% of the credit limit will report as a high balance. To put that in perspective, any balance over $50 on a card with a $100 credit limit will negatively impact your credit score. To avoid going over 50%, we recommend never using more than 30% of the credit limit.

Will the credit bureaus track every purchase made on my card?

Creditors will only report your credit card balance to the credit bureaus once a month. This means that you don’t need to use your cards a lot throughout the month to increase your score. We recommend reaching out to each creditor to ask what date each card will report to credit. This is the best way to plan ahead to make sure the reporting balance is paid down by that date.

Should I pay off my card completely?

Building a habit of paying off your credit cards every month can help you avoid unnecessary interest payments. However, to get your credit score in the best standing possible, we recommend leaving a small balance, preferably 1% of the credit limit, on your card. That is just a $1 balance for a card with a $100 credit limit.

Still have questions? Schedule a free credit evaluation with our team! We are happy to help.