3 ways a new credit card can boost your credit score – The Points Guy

You may be in the market for a new credit card for a number of reasons. Maybe you want the opportunity get a new welcome bonus or important prize from the everyday purchases you make. And some people look for a new credit card to achieve a “good” credit score.

If you are applying for a credit card i improve your credit scoreit is important to understand how the news may affect you.

There are many ways a new credit card can help your credit score, but there are a few pitfalls to watch out for. Otherwise, opening a credit card can set your credit score back — either temporarily or long-term.

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

Reduce your usage rate

Perhaps the biggest benefit you can get from a new credit card is the chance to lower your overall balance. debt ratio. Credit utilization is a term that describes the percentage of your credit card limit that is being used. A lower credit score is better for your credit score.

A new credit card comes with a new credit limit. The news could trigger a drop in your credit utilization rate if you already have other credit cards with outstanding balances. This, in turn, may improve your credit score.

Yes, the best way to reduce the use of debt is Pay off your credit card balance. But if you can’t afford to get rid of your credit card, ask for a higher credit limit or opening a new credit card can help you in the short term. You can also consider using a grant vouchers as a way to consolidate credit balances and reduce your credit utilization at the same time.

Establish good history

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Another way a new credit card can help your credit score is by allowing you to build good credit history. Pay history 35% of your FICO score and 41% of your VantageScore credit score. Therefore, if you open a new credit card and pay regularly, the account can help you establish a strong credit history over time.

Also, if you only have a few issues on your credit report, you can benefit from opening a new credit card. When you get a “thin” credit file – less than five credit accounts – you may have problems qualifying for a mortgage, renting an apartment or opening a cell phone account.

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Target: Why paying off credit card balances is more important than ever

Sort out your credit mix

A new credit card can help your credit score by adding a dollar difference to your credit report. Credit score examples like FICO and VantageScore hear more information on your credit report.

One of the reasons these benchmarks are considered is to mix the types of information you are experienced in handling, also known as your credit mix. Credit mix is ​​10% of your FICO Score and 20% of your VantageScore.

There are two main types of debt financing – financing and revolving. Debt payments usually include mortgages and auto, student and personal loans. Revolving credit includes credit cards and lines of credit. Having a mix of these accounts on your credit report can increase your credit score.

Adding a credit card to your credit report may help your credit score if you don’t already have a credit card. However, if you already have other credit cards showing up on your credit report, you probably shouldn’t expect an additional credit score increase. this section.

Credit score scams to avoid when opening a new credit card

  • Late payment: Always pay. Late payments can damage a good credit score. In addition, negative information Like late payments can stay on your credit report for seven years.
  • Using advanced credit: A high balance on the limit is likely to be bad for your score. Also, if you carry an overdraft balance from month to month, it’s usually high interest payments so do i. It is best to pay your account balance in full every month.
  • Apply for multiple accounts: You don’t have to worry about it apply for a new credit card if you want to take advantage of a wonderful offer. But too many surveys in a 12-month period can hurt your score.
  • The release of many news: When you open a new credit card, your average account age is lower. This can cause a credit score to drop in the short term. And if you open many new accounts at the same time, credit card or something else, you may see an even worse effect.
  • Close old stories: In general, It is not a good idea to close old credit cards because you have opened something new. Closing an old credit card (especially one with no balance) can increase your total credit utilization and lower your credit score.
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bottom line

A new credit card usually has the potential to help you improve your credit score if you open an account and use it properly. However, it is important to always pay. Also, it’s best to pay off your credit card balance in full every month.

Target: TPG’s top 10 rewards credit cards

You should also consider reviewing your three credit reports to see where your credit stands before you apply for a new account. Once you know where your credit stands, you’ll be in a better position to shop for best credit card for your situation.

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