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Credit Score Advice: Don’ let you credit cards affect your credit score

By Sally Maison
Published: Thursday, April 29th, 2010

If you are planning to make an investment, you need to go to a creditor. Credit is the term used to describe the process where a borrower borrows some money from a lender to buy goods and services.

The borrower also promises to pay the money back in periodic instalment at an interest rate decided upon previously. When you apply for a loan or a credit, the creditor will try and find out the kind of person you are financially. This can be found out by going through your credit history. Your credit history is listed in complete detail in your credit report. It has all the details of every single credit you have taken including late payments, amount overdue and any charged off accounts. Thus, with your credit history, the creditor takes a decision regarding your new application for a credit.

A good credit history shows that you are punctual in your repayments and are low risk. You will have the credit approved easily at low interest rates. A bad credit history will show that you are a much higher risk and a credit with high interest rates might be approved. There are chances that the credit or loan application might be rejected altogether. The entire of your credit history can be reduced to a small number that will, on its own, denote your credit history. This is known as your credit score. A credit score is calculated by FICO or the credit bureau and will help determine your financial future.

One credit that is very common and most of the people use is the credit card. Many people would want to know how a credit card affects the credit score. Credit cards can have both harmful and negative effects as well as positive effects on your credit score. People might think that closing a credit card is a good move as you will be getting rid of a credit. However, this is not the case always. You will be reducing the length of your credit history.

Length of credit history forms fifteen percent of your credit score. You will also be increasing your debt to credit ratio as the available credit is reduced. The reverse must also hold true and it does hold true. A person without too many credit cards can open more credit card accounts and ensure an increase in the debt to credit ratio. This will in turn increase the credit score. However, care must be taken as too many credit cars might eventually reduce the credit score.

A credit card not used regularly will also have a negative effect. The vendor might not report the details of the card at all. Use all your cards regularly to ensure a good score. If you use a single card and ignore the rest, it does not matter if you pay it off every month. The creditor will see that you have a debt every month and you pay punctually. The zero balance will not be notified. It is a good idea to have more than one credit card and rotate them to ensure zero balances are reported and your score can increase.

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