When it comes to gaining a high credit score, credit cards can be a double-edged sword. Based on how you make the use of them, you can improve your credit score significantly or suffer a vertiginous drop. Whether you use a free credit card or a card that charges an annual fee, it can help you to maintain an excellent credit score if you make the right use of it.
But there are certain factors that can either make or break your credit score. It increases or decreases your credit score depending on how well you manage each of the following factors:
This is one of the most important factors that have a great influence on your credit score. Serious payment issues such as collections, charge-offs, tax liens, bankruptcy, foreclosure, or repossession can hurt your credit score making it difficult for you to get approved for anything that requires a good credit score.
An ideal way to maintain a good credit score is to pay your credit card bills on time every month. And if you carry multiple credit cards, you can also set up alerts and reminders to avoid missing payments or delaying them.
This factor needs to be maintained smartly. Your debt level determines a major portion of your credit score. It is evaluated by comparing how much debt you carry against your credit limit. That does not mean you need to keep the debt at ‘zero’ instead of that try to keep it less. Credit card issuers want to determine your repayment ability whether you can repay the money that you have borrowed.
However, it is advised that you should keep your credit card utilization at 30% or less. Having too much debt can affect your credit score negatively.
A minimum amount due is just a small portion of the principal amount that is outstanding every month. If you constantly keep on paying only the minimum amount due, you may trap into debt. As carrying forward the debt pay paying only the minimum amount due causes your interest compound on the outstanding balance. So, it does not only indicate your poor repayment behavior but break your credit score. Thus, it is advised to pay your credit card bills in full.
Some people are too suspicious about using credit cards as they think that using a credit card may lead to unnecessary spends and bad credit habits. That is why they avoid using a credit card. But doing no transactions on credit cards will make your credit file inactive and reduce your credit score significantly.
Credit cards are a great source of building a credit history. However, when you shut your old credit card accounts, you may end up losing a long credit history that is associated with it. So, if you have used the card for several years, do not close your old credit card accounts since it may take a toll on your credit score. Your old accounts could have a long credit history & deactivating them will hurt your credit score.
Outstanding debt is another major factor that can affect your credit score negatively. Make sure you pay off your unpaid dues immediately even if they have been delayed for a long period of time. Missed payments on your credit cards keep on reflecting on your credit report until you clear them off completely. That is why it is suggested to clear off your outstanding dues even if the amount is small to maintain a good credit score.
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Even if you have the best credit cards in the UAE, it is very important to pay your bills on time, clear off your outstanding debts, and use your credit card responsibly. Doing this will help not only help you to maintain a good credit score but also it depicts your creditworthiness.