A credit card is a credit facility provided by the lender where an individual can make purchases and has to repay the amount spent to the bank at the end of the billing cycle. The popularity of plastic money has increased over time as no one wants to keep a lot of cash with them when they go to shop. A credit card offers a lot of convenience to the individual in terms that they do not need to carry lot of cash each time they step out of the house.
However, using a credit card in any way affects your credibility. Using it well will help your credit score go up and not paying the bill on time can affect your credit score. There are 5 ways how your credibility can be affected on the way you use your credit card; they are as follows;
Applying for many credit cards:
The golden rule here is that you apply for a credit card only when you need it. Applying for many credit cards weakens your financial profile as the lender will relate many credit cards to desperation of credit. Hence be cautious here and maintain one credit card.
Not paying bills on time:
Not paying credit card bills on time affects your credibility. Hence using the credit card for emergencies is wise. Repaying back only the “minimum amount due” is a bad indicator and the lender gets the impression that you cannot manage your finances properly.
Utilizing a higher credit ratio:
A credit utilization ratio is the ratio of credit available and credit utilized. Lenders are cautious of individuals who have a higher credit utilization ratio because this shows you are dependent a lot on credit. Hence there is a possibility of you defaulting on one or more payments. An individual must try and keep a lower utilization ratio than 30%* of the available credit. If the expenses are higher, perhaps you can ask the lender to increase your credit limit.
Not paying timely bills on add on cards:
Add on cards are provided to many customers. These cards are given to the parents, spouses, children etc to use. The bills are sent to the primary card holder. In case the payments are not made on time, the credit score is affected of both; the primary and add-on card holders. Hence an individual must be cautious as to whom the add-on cards are given.
Credit card account closure:
Closing your credit card account does not mean that your credit history will get erased on their own. You need to pay your bills on time without defaulting. Also lenders find a profile with longer credit history safer than the one with short credit history. Hence you need to carefully evaluate your decision of closing credit card.
To know more about credit cards