Introduction To Credit Cards. What Makes Up Your Score?

Let’s get straight to the point. Your credit score is literally the most important number in your life. It’s a three digit number between 350 to 850 which lets lenders figure out how trustworthy of a borrower you are. As in, how likely are you to pay back the money you are borrowing?

Quick background: The credit score was originally formulated by the Fair Isaac Corporation. In reality, you have three credit scores, each assigned from a credit bureau: Equifax, TransUnion and Experian. Yes, these three bureaus decide how easy or tough your life will be.

Below are the Holy Commandments of using credit cards? Relax. You’ve got this…

Payment History

This single handedly makes up the core of your score. Have you made a late payment? How late did you pay your bill? You have 30 days after your due date to pay up. If you don’t, your pristine credit report will be tarnished for a long time and you will see your score plunge into a deep dark abyss. Do not make payments more than 30 days after the due date.  

Keep Your Utilization Rate Low

How much of your credit card have you used up? Here’s a tip most people don’t know: you are better off spreading your charges over multiple cards rather than charging it all on one card. If you use up more than 30% of your available credit, you may trigger off a signal to the credit bureaus. Spread your debt, and keep your utilization rate low.

Apply For Multiple Credit Cards.

Contrary to popular belief, having more cards doesn’t reduce your credit score. You can have an amazing score with 2 cards, or 7 cards. It’s how you use them not how many you have. Keep your utilization rate on all cards low. More credit cards gives you a higher total credit line.

Length Of Credit History

Your credit history begins the day you first open up your credit. A longer history helps establishes your credit age. People may unintentionally close their oldest credit card which will reduce your credit history. That hurts your score.

Don’t Close Credit Cards

In my younger, naive days I would apply for credit cards, use them for their perks, and then close out the card. Very bad idea. Closing out cards hurts your score. You reduce your total line of credit. So next time, just pay off the card and throw it away.  Now you’re done.

Pay Off Your Card In Full Each Month

If you can’t pay off your entire balance by the monthly due date, something is wrong. You are spending too much and will soon enough owe a small fortune to the banks. You are now officially in credit card debt and can’t get out. Remember what you don’t pay at the end of the month gets charged toxic interest. What a waste of your hard earned dough.

Request a Higher Credit Line

After you have paid your dues (no pun intended) by making on time payments, call up the bank and request a credit line increase. I have done this time and time again to receive credit increases. Remember, more credit is a good reflection on you. It will help keep your utilization rate lower. If you were given a raise at your job, use that as a leveraging point during this call.

You Can Get Fees Waived

Say you get a late fee of $25. A simple call to the bank can get you a courtesy waiver. I’ve done this multiple times, even with the same card. I even had the $59 annual fee removed from my Capital One card simply because I didn’t use the card enough and forgot it had an annual fee. Be tactful and courteous when speaking to the representative.

Negotiate a Lower Interest Rate

No one wants a credit card with soul crushing 24% interest. After you’ve established longevity with the card (around 6 months) you can give them a call and request them to bring the interest rate down. I haven’t personally tried this, but it can make a huge difference if you have massive balances. Again, be super courteous on the phone. It helps.

Verdict: Your credit score is made up by a lot of attributes. The most important one is if you make your payments on time. Your credit score is the biggest factor in saving you the most money over the duration of your life.


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