When it comes to your credit score, you can’t be too careful. Your credit score will determine a lot of things in your life. Not only will it determine how big of a house you can buy, in some places it might even determine how much you pay for your car insurance premiums or whether or not you get a job.
Credit cards are one important factor in your credit cards. Some folks will tell you that, if you want to have a good credit score, you need to use your credit cards. This isn’t exactly true. In fact, it’s really not true at all.
To have a good credit score, you need to pay your bills on time. That’s the number one way to improve your credit score. Having a zero balance on your credit cards in and of itself doesn’t help nearly as much as paying your bills on time. Those late payments can show up on your credit report and will remain a blemish for years.
There’s another way that credit cards can affect your credit score, and that’s in the area of something known as your “utilization ratio.” This is the amount of money that you have as available credit compared to the balance on your credit card. If you have a credit limit of $10,000, for example, and you carry a balance of $3,000, you have a ratio of 30%. This is a good number, although lower is always better. If you can help it, don’t go above 30%.
In this regard, it can be good to have a zero balance on your credit cards. The main thing is that you do what you need to do to keep the cards open and active. That might mean making a few small purchases throughout the year, and paying off the balance at the end of each month.
Your credit cards matter to your credit score in another way. If all of your credit is revolving credit, such as with credit cards, you’re not going to have as good a score as if you have more diversified credit. Having a car loan or home loan along with those credit cards will be a more ideal mix, and will help your credit score.