Credit Card Review Blog

How Do Your Credit Cards Affect Your Credit Rating?

How Do Your Credit Cards Affect Your Credit Rating?

Are your credit cards and your credit rating connected? Absolutely. People who don’t understand the connection between your credit rating and your credit cards are often the ones who get themselves into financial trouble. If this scenario applies to you, don’t worry and don’t stop trying.

First of all, you need to understand the connection between your credit cards and your credit rating. You need to understand what portion of the population have credit cards and who uses them. Twenty-four percent of American households didn’t have even one credit card in 2001. In addition, according to the U.S. Census data from 2000, most households had at least four active credit cards. This data also reported that almost 15 percent of the U.S. population had more than 10 credit cards.

Can you imagine have more than 10 credit cards? How would you ever keep them all straight? How would you keep up with so many due dates and payment amounts? This is precisely why people mess up their credit rating with credit cards. Credit cards were originally introduced as a safety precaution. They allowed people the opportunity to buy things without having to pay cash and the security of protection against unauthorized purchases. Credit cards are allowing people to live way beyond their means now. Instead of paying off the card each month, many people let the balance skyrocket. This practice affects their credit rating in a drastic, negative way.

Credit cards are just one portion of your entire credit rating. Although, credit cards can be a good indication of your intent to pay back your debt, they can also be detrimental to your credit score. Lenders look at your income to debt ratio. If you have a lot of credit cards with balances on them, chances are that your credit to income ratio is negative. Your credit to debt ratio also needs to be less than 50 percent. It may also be better to split a balance on one card between two cards. This will free up your credit limit.

Your credit cards can be beneficial to your credit score. But, you must know how to handle these cards. The best thing to do is to only have one or two credit cards and pay the balance off each month. You can consolidate your credit card balances onto the card with the lowest interest payment as well. The best way to improve your credit rating is to consolidate and eliminate as much as possible. Keep your credit cards in check if you want to get a great credit rating.