3 ways a new credit card can boost your credit score

You may be in the market for a new credit card for a variety of reasons. Maybe you want the chance to earn new welcome bonus or valuable rewards from the daily purchases you make. And some people look for a new credit card to gain a “good” credit score.

If you are applying for a credit card to improve your credit scoreIt’s important to understand how a new account can affect you.

There are a number of ways a new credit card can help score your credit, but there are also some pitfalls to be aware of. On the other hand, opening a credit card can cause your credit score to drop – either temporarily or in the long term.

Let’s discuss three ways a well-managed credit card account can potentially help your credit score.

Reduce your credit utilization rate

Perhaps the biggest benefit you can get from a new credit card is the ability to reduce your overall costs. credit utilization rate. Credit utilization is a term that describes the percentage of your credit card limit that is being used. Using lower credit is better for your credit score.

New credit cards come with new credit lines. A new account can reduce your credit utilization rate if you already have other open credit cards with outstanding balances. In turn, this can improve your credit score.

Of course, the best way to reduce credit usage is pay your credit card balance. But if you can’t afford to drain all your credit cards, request a higher credit limit or opening a new credit card may help you in the short term. You might also consider using a credit card balance transfer as a way to consolidate your credit card’s outstanding balance and reduce your credit usage at the same time.

Set up a good payment history


Another way a new credit card can help your credit score is by allowing you to build a good credit history. Payment history makes up 35% of your FICO score and 41% of your VantageScore credit score. Therefore, if you open a new credit card and always pay on time, that account can help you establish a solid payment history over time.

Also, if you only have a few accounts on your credit report, you can benefit from opening a new credit card. When you have a A “thin” credit record — fewer than five credit accounts — You may have trouble qualifying for a mortgage, renting an apartment, or opening a cell phone account.

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Related: Why paying off your credit card balance is more important than ever

Diversify your credit mix

A new credit card can help your credit score by adding account diversity to your credit report. Credit scoring models such as FICO and VantageScore Pay attention to the many details on your credit report.

One of the factors these scoring models evaluate is the mix of account types you have experience managing, also known as your credit mix. Combine credits worth 10% of your FICO Points and 20% of your VantageScore.

There are two main types of credit accounts – installment and revolving. Installment credit typically includes mortgages and auto, student, and personal loans. Revolving credit includes credit cards and lines of credit. Having a mixture of these accounts on your credit report can increase your credit score.

Adding a credit card to your credit report can help score your credit if you’ve never had a credit card. However, if you already have other revolving credit cards showing up on your credit report, then you probably shouldn’t expect any extra credit score in this area.

Credit score pitfalls to avoid when opening a new credit card

  • Late payment: Always pay on time. Late payments have the potential to destroy a good credit score. More, negative information For example, late payments can stay on your credit report for up to seven years.
  • Use high credit: A high balance-to-limit ratio tends to be bad for your credit score. Also, when you rollover your credit card balance from month to month, you’ll typically pay high interest rate also. It is best to pay your statement balance in full each month.
  • Registering too many accounts: You don’t need to worry to apply for a new credit card when you want to take advantage of an attractive offer. But too many questions in a 12-month period can damage your credit score.
  • Opening too many new accounts: When you open a new credit card, your average account age gets younger. This can cause a short-term drop in your credit score. And if you open too many new accounts at once, credit cards or other accounts, you may see a larger negative score impact.
  • Close old account: Generally speaking, Don’t close old credit cards just because you open a new one. Closing an old credit card (especially one with no balance) can increase your overall credit utilization rate and lower your credit score.

bottom line

A new credit card can often help you improve your credit score when you open an account and use it responsibly. However, it is important to always pay on time. Also, it’s best to pay off your credit card balance in full every month.

Related: TPG’s 10 Commandments of Rewarding Credit Cards

You should also consider considering your three credit reports to see where your credit stands before you sign up for a new account. When you know where your credit stands, you’ll be in a better position to shop around for best credit card for your situation.


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