Does having a credit card improve credit score?

Having a credit card can be a smart financial decision if you use it wisely. There are reward points to enjoy, cashbacks to benefit from, and the added convenience of cashless and online shopping.

Yes, having a credit card is liberating, but this freedom comes with its share of responsibilities. As a credit card user, you must be careful not to overspend and clear all debts you have owing as soon as you can.

Staying on top of your credit card debt is important when you consider how it can impact your credit score. The impact on your credit score starts from when you apply for a credit card and carries through to how you use it. You might be surprised to hear that even not having a credit card can impact your credit score.

How can using a credit card help your credit score?

Your credit score is a number between 0 and 1200, and credit bureaus calculate it based on the information available on your credit report. The score helps illustrate to lenders your trustworthiness and that you can pay back any loans or debts you have. When it comes to your credit card, your card issuer updates one or more of the three major credit bureaus monthly, who then include it in your credit report. Your outstanding balance, credit limit, account status, payment history, and even the date you opened the account will influence your credit score.

The absence of an open, active credit card account on your credit report can mean you don't have a credit score at all or have a low score due to less information. Having a low or no credit score could make it more difficult to get approvals on a mortgage or car loan.

How will getting a credit card improve my score?

Credit cards are one of the more accessible type of credit accounts to get approved for quickly. That makes them the ideal vehicle to establish and build a good credit history. Of course, you need to manage your credit card well. This management includes not using up the entire available credit limit on the card.

To make sure your credit card doesn't hurt your credit score, you’ll need to keep it open and active with low unpaid balances. If your credit score is good, you could be eligible for a credit card with better rewards and terms than what you have currently.

I already have one credit card. Does getting a second credit card hurt credit score?

Having multiple credit cards can affect your credit score in many ways. The most significant is that there is a record of each application on your credit report, which increases your credit enquiries.

With more than one credit card, you are taking on more risk, as you may not be able to track multiple bills and due dates. It also increases your overall credit which could be considered more of a risk for some lenders.

Unfortunately, there is no way of knowing exactly how many credit cards you can have without affecting your credit score. Each individual’s personal circumstances would change this number. To stay on the safer side, you’d be best to keep your credit applications to a minimum.

Does paying off your credit card raise your credit score?

Yes, regularly paying off your credit card balance will be seen as a ‘positive event’, as shows you are a responsible borrower that can make repayments on time.

Does getting rejected for a credit card affect your score?

When you apply for a credit card, the lender will do a ‘hard inquiry’ on your credit report, which will be recorded. This inquiry will stay on your credit report for five years, and while one inquiry won’t impact your credit score too much, multiple inquiries will.

If you are rejected for a credit card, take some time to reassess and understand why that may have been, and what you could change to improve your chance for next time.