[Radio host] It's time for komo news 1000 FM 97.7's Money Matters with Briana Mickelson from WSECU.
[Briana] Most of us have at least one credit card in our wallet. If used irresponsibly, they can have a negative affect to your credit score. But there are ways to make your credit cards work in your favor. One of the most important factors of your credit score is payment history so pay on time, every month. Avoid higher balances. If possible, stay below thirty percent of your credit limit. To boost your score, find out if your credit limit can be raised, but don’t increasing your spending to get the full benefit. This will help your overall percent of credit used stay below that 30%. Finally, show credit diversity by having both a credit card and another type of loan if that fits into your financial ecosystem. These tips can help you boost your credit score and achieve your financial goals.
[Radio host] Money Matters: brought to you by WSECU. To learn more visit wsecu.org/moneymatters.
[Briana] If you live in Washington, WSECU is your credit union. We're a not for profit, local member-owned credit union. We put our members first, and we treat people like neighbors, because we're your neighbors, too. If you're in a difficult spot financially because of the pandemic you're not alone. We're here for you. We can help you get through it and be ready for whatever comes next. We are WSECU: the credit union for Washington. Visit us at wsecu.org to learn more. Forward together. Federally insured by NCUA.
Learn what positively and negatively affects your credit score.
Many factors go into determining your credit score, that magical, hard-earned number that identifies you to potential lenders as either high or low risk. More than half of that number comes down to how you use — or don’t use — your credit cards.
From applying for a new card to closing out an old one, everything having to do with a credit card — balance, payment history, credit limit, account status, date opened, even not having one — will influence your credit score. Without the benefit of a healthy credit card history, you may find it difficult to get approved for a mortgage, car loan, apartment or other transaction requiring a credit check.
The simple act of applying for a new card, for instance, can temporarily knock a few points off your credit score. Such “hard” inquiries, especially if made repeatedly, may suggest a borrower is desperate for cash, which is why it’s best to keep such applications to a minimum.
Keep in mind that opening a new credit card can lower the average age of your accounts. Length of credit history makes up about 15% of your credit score, so you may lose points if a new account drops your average too low.
On the other hand, adding a new line of credit can increase your credit mix. This is considered a net positive by lenders, since having more than one type of credit (e.g., auto or student loans plus credit cards) shows you’re capable of handling a diversity of credit.
Another benefit of a new credit card: lower credit utilization. Credit utilization is how much of your available credit you actually use. Less than 30% of your max is recommended (although under 10% is considered ideal for the best scores). So unless you use that new card to make big purchases or transfer large balances, your regular spending may translate into a smaller percentage of your increased credit limit.
It may seem counterintuitive, but canceling an old credit card can actually hurt your credit score because of how it affects your credit utilization. It reduces your available credit and, thus, your utilization rate. As mentioned, you want that credit-to-debt ratio to be as wide as possible.
As long as you’re not paying a high annual fee (or risking the temptation to overspend), it’s good to keep credit card accounts open for as long as possible. Along with the higher utilization rate, this also keeps the average age of your accounts from dropping. If you’re not using a card regularly, consider adding a small recurring payment (such as a streaming service or utility) to keep it active and part of your overall mix.
How you use — and pay off — your credit card is even more important. With payment history determining up to 35% of your credit score, it’s crucial to make timely payments, even if only the monthly minimum. Otherwise, a single late payment past 30 days can have a serious negative impact, one that could take months if not years to recover from. Consider setting up automatic bank payments if that becomes a concern.
Carrying large monthly balances can also paint you as a greater risk, even if you pay off your balance every month. One way to avoid this is to make payments just before your statement closing date since it’s that end balance that gets reported (whether you’ve paid it off or not).
A credit card can be a great financial tool with many benefits. But it’s important to understand how using it can both help and hurt your credit score.
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About Money Matters
WSECU is proud to sponsor Money Matters, presented by Briana Mickelson, our Vice President of Member Experience, in partnership with KOMO Newsradio and STAR 101.5. Money Matters offers a great mix of tips, tricks and advice to help you make the most of your finances. Tune in on weekdays to KOMO Newsradio at 7:50 am or STAR 101.5 at 5:50 pm to hear the latest episodes. And check back here for the latest deep-dive information on current financial topics, taking you one step closer to financial wellness.