Does my credit card impact my credit rating?

When signing up for a shiny new plastic companion — aka a credit card — a lot of people wonder, “Will this affect my credit rating?” There are some important variables that play into the final verdict.

In short, your credit card usage does play a large role in your overall credit rating. Here are three main ways that your credit rating can be impacted by credit card usage:

1. Your balance

How much of a balance are you carrying on all your credit cards? Look at this as a percentage of how much you could borrow if you wanted to.

For example, if you have two credit cards that each allow you to borrow $5,000, then you have up to $10,000 in available credit. Or, if you carry a balance of $1,500 on each card, then you have $3,000 of used credit. That leaves you with $7,000 (or 70%) of available credit.

However, if you spent a lot more on each card and have a combined balance of $8,500, you’ll only have 15% available credit. Still, this amount is better than being “maxed out” on both cards, carrying the full $10,000 debt over from month to month and having 0% available credit.

By far, the most important piece of advice to remember when using credit cards is to always make at least the minimum monthly payment when you receive your statement. If you fail to make this minimum payment, it will almost always trigger some significant changes to your overall credit rating.

If you aren’t sure what a minimum payment is or where to find it on your credit card statement, read this article to get some quick tips.

2. Applying for more credit cards

You’ve likely received enticing credit card incentives in the mail or have walked past people offering fun giveaways with credit card signups at airports and special events. Needless to say, it can be tempting to apply for several credit cards all at the same time to take advantage of these offers.

However, avoid the impulse to apply for multiple new credit cards. Every time you apply for a credit card, the credit company will look at your rating. And when several credit checks happen in a short time frame, this can result in a drop in your credit score.

Does my credit card impact my credit rating?

3. Having many credit cards

You may also wonder whether owning several credit cards is bad for their credit rating. Possibly not.

Over time, people may graduate from using a student credit card to using a cash back credit card, then adding a couple of store-specific credit cards in order to take advantage of unique perks. As long as you didn’t apply for all of these credit cards at once, it’s quite unlikely that having several cards has negatively affected your credit rating.

In fact, having the ability to borrow more money as a result of having several credit cards will probably help your credit score. Why is that? You’ll be using a smaller percentage of your overall credit capacity at any one time, and that can contribute positively to your rating.

Related: How to read my credit card statement 

How to use my credit card to boost my credit rating

You shouldn’t be afraid of your credit rating when using your credit cards — as long as you remember the most important piece of advice: Always make your minimum payment on or before the due date.

Paying your credit card company the minimum amount shown on your monthly statement will tell the credit bureaus that you are trustworthy and pay companies back when you owe them money. This will result in a higher credit score.

Be careful about how high your balance is from month to month, and then stay away from trying to get several new cards all at once. By following these tips, using a credit card will become an excellent way to help build your credit rating for your future financial health.

About Kyle Prevost

Kyle Prevost is the high school business teacher that you wish that you'd had. When not engaging young minds, you can find Kyle writing and speaking about personal finance, or trying to recapture past glories in a boxing ring.

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