How Can I Improve My Credit Score by Managing My Credit Cards?

October 16, 2017

One of the most important things you can do for your finances is to maintain a good credit score. Your credit score can open doors to lower interest rates, better housing, and even lower insurance premiums.

As you plan your future money moves, it makes sense to think about how certain moves could impact your credit. With a little planning and discipline, I’ve found it’s possible to improve my credit score with the help of credit cards. It’s important to be careful as you do this, however. If you spend too much, you could end up in debt, and your credit score will then suffer.

Keep Credit Card Balances Low

First of all, it’s important to keep your credit card balances low. It’s even better if you pay off your credit card each month. Paying your credit card off each month will help you plan your budget better, and keep you from getting in over your head. However, if you can keep your credit card balances low, to less than 30 percent of your available credit line, you can still maintain a good credit score.

If you currently have high credit card balances, you can make good progress toward improving your credit score by working on paying down your debt as quickly as you can. A debt plan can help you get things in order and move forward with your finances.

Make Your Payments on Time

One of the reasons credit cards can be so powerful when it comes to your credit score is due to how often they report to the credit bureaus. Many cards report your payment history once a month. The most important factor in a credit score is your payment history. So if you pay on time, and you pay at least the full minimum, you will establish a positive pattern that can benefit your credit score.

By making sure you keep your debt amount low, and by ensuring that you pay on time each month, you can go a long way toward improving your credit score.

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Don’t Close Old Credit Card Accounts

You might be tempted to close an old credit card account. Maybe you don’t use the card very much. Perhaps it doesn’t offer rewards, and you want to replace it with a new card. The reality is that the length of your credit history matters, and if you close an old card, it can mean your average credit age is lower. A longer credit history can help your credit score stay higher.

Another reason to consider keeping old credit card accounts open is the fact that the available credit can help your debt utilization score. Your debt utilization is how much of your total available credit you are using. Closing a credit card, especially if you have other cards that you’re trying to pay off, can suddenly change that ratio, sending your credit score lower.

To keep an account open, you might have to use it on occasion. Plan out your budget so that you make at least one or two small purchases on each credit card every month. Then you can pay off those purchases easily.

Budgeting with Credit Cards

If you have the discipline, it’s possible to integrate credit card use fully into your budget, improving your credit score and reaping any rewards that come with the account. To do this, you need to make sure you understand your budget and cash flow. Then, use your credit cards for all your regular purchases.

You shouldn’t use credit cards for unplanned purchases that you don’t already have the money for. The key to this approach is to pay off your balance each month. That way, you don’t end up in debt and paying interest. As you use your credit cards and pay them off each month, your credit score will improve, and you’ll even earn cash back or free travel as a result of the rewards you earn with your credit card.

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