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Does Getting a Credit Card Improve Your Credit Score?

Written by Marc Guberti

Marc Guberti is a Certified Personal Finance Counselor who has been a finance freelance writer
for five years. He has covered personal finance, investing, banking, credit cards, business
financing, and other topics.
Marc’s work has appeared in US News & World Report, USA Today, Investor Place, and other
publications. He graduated from Fordham University with a finance degree and resides in
Scarsdale, New York.
When he’s not writing, Marc enjoys spending time with the family and watching movies with
them (mostly from the 1930s and 40s). Marc is an avid runner who aims to run over 100
marathons in his lifetime.

Updated March 20, 2023​

6 min. read​

Many people use credit cards to simplify payments. You don’t have to reach into your pocket at a local store or worry about an overdraft fee from your debit card. However, some people avoid credit cards because they don’t want to incur any debt. Credit cards have higher interest rates than many loans, but these financial products can strengthen your credit score. We will discuss how using a credit card can improve your credit and some risks to consider before getting started.

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Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

How Getting a Credit Card Improves Your Credit Score

Credit card usage will influence multiple categories of your credit score. Using your credit card can increase your score over time. A higher credit score helps you get lower interest rates on your loans and borrow more money from the bank. The benefits of a high credit score extend into other areas as well. Landlords will look at a tenant’s credit history before letting them live on the property. Employers may check your credit report to determine if you are the right fit for the job. Even insurance companies look at your credit scores when deciding on premiums. A higher credit score can entitle you to a more affordable insurance policy.

Credit cards give consumers an easy and simple resource to improve their credit scores. Opening a credit card and using it to make payments will impact your credit score in the following ways.

Credit Utilization

Credit utilization measures how much you have tapped into your credit line. For example, if your credit card has a $5,000 credit limit and you have $1,000 in credit card debt, you have a 20% credit utilization ratio. Keeping this ratio below 30% will improve your score, but it’s optimal to have a credit utilization ratio below 10%. You can improve your credit utilization ratio by getting a higher credit limit and paying off the balance. Credit utilization makes up 30% of your credit score and is the second largest component of your FICO score.

Credit Mix

Your credit mix is a key category that impacts 10% of your FICO score. Taking more loans and revolving lines of credit provides a more diverse credit mix. The major credit bureaus want to see that you can manage multiple financial obligations, and it will help you get a better loan. A credit card strengthens your credit mix since it is a line of credit. Demonstrating your ability to handle a credit card and other financial products will improve your score.

Additional On-time Payments

On-time payments are the best way to increase your credit score. Payment history makes up 35% of your credit score and shows lenders that you can keep up with expenses. Making on-time loan payments improves your payment history. On-time payments on student loans and mortgages will also improve your credit score.

Credit cards make it easier to build your payment history. For example, every purchase you make can increase your history of on-time payments and complement on-time loan payments. You can build your credit every time you go to the grocery store or buy products online. Credit cards create more opportunities to build up your history. You can make the minimum payment and be in good standing. Still, making more than the minimum payment is best to protect your credit utilization ratio and avoid debt accumulation.

How Getting a Credit Card Can Hurt Your Credit Score

A credit card can work wonders for your credit score and help you qualify for better loans. Lenders will look at your credit score before deciding how much to let you borrow for a mortgage. But, while a credit card can help you build good credit, it can hurt your score if you aren’t careful. Every purchase can turn into a credit-building opportunity, and therein lies the benefits and pitfalls of credit cards. The cards millions have come to use for everyday purchases can hurt your score in the following ways.

Hard Inquiries on Your Credit Report

Every time you apply for a new loan or line of credit, you get a hard inquiry on your credit report. Hard inquiries allow creditors to analyze your financial health more in-depth. It also helps a lender determine if you have the necessary credit score to get financing. Most banks, credit unions, and online lenders have minimum credit score requirements to take out a loan or line of credit. Hard checks make creditors feel more confident about entrusting you with financial products, but they will hurt your credit score. You will also go through a hard credit check if you apply for an unsecured credit card (i.e., you don’t need to make a security deposit to get the card).

A single hard inquiry won’t devastate your credit score, and you’re only likely to lose a few points. It won’t take much time to make up ground, especially as you build a solid payment history. Hard inquiries become more worrisome if you apply for numerous credit cards and other types of financing simultaneously. You won’t have to worry much about a hard credit inquiry if you apply for one credit card and get approved.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Length of Your Credit History

Your credit history’s length impacts your score. It makes up 15% of your FICO score. Borrowers with lengthier credit histories get higher credit scores. More experience makes a borrower more trustworthy to a lender. Opening a credit card gives you additional credit history. New credit cards will not hurt your score, but closing an older account can reduce your score by a few points. 

You should keep older credit cards open even if you do not use them anymore. That’s because each deleted credit account reduces the average age of your credit accounts. The credit history from older accounts will continue to bolster your score, even if you don’t use them. It’s important to keep in mind that some credit card issuers will automatically close your credit card if it remains inactive long enough. Putting a single monthly subscription on an older credit card will provide enough activity to keep your account open. It may only make sense to close a credit card if the issuer charges a high annual fee and you no longer use the card. If you have one of these cards, wait until you don’t need another loan for several months until you decide to close it. 

Higher Balances

A higher credit balance will put you closer to your credit limit and raise your utilization ratio. Creditors will get nervous if they see a high credit utilization ratio, especially if it’s above 30%. A higher percentage indicates that it takes longer for the borrower to repay debts. A lender may be skeptical about giving out loans to people with high credit utilization ratios. Struggling to keep up with credit card debt doesn’t paint a good picture of a consumer’s ability to keep up with additional loan payments. You should only use your credit card for purchases you can quickly repay. Letting the balance accumulate can make it more difficult to get better loans when you need them.

A common trap is to only make the minimum payment. Although the minimum payment will protect you from additional fees, your credit card’s balance will remain high and increase due to interest. Credit cards have double-digit interest rates, and the debt can snowball quickly if you are not careful. If you avoid an excessive balance, you are less likely to fall into this trap.

You can consider a balance transfer to minimize the pain of a high credit card balance. During this transfer, you get to pay 0% APR during the introductory period. In addition, since interest doesn’t accumulate, you get an opportunity to ensure every credit card payment reduces the principal. 

Not Paying What You Owe

On-time payments will strengthen your credit score, but late payments will have the opposite effect. Making late payments on your credit card will raise doubts about your ability to handle additional debt. A lender’s primary objective is to make money from borrowers who can pay the loan on time. This critical objective explains why payment history is the most important credit score category for your FICO score and VantageScore. Any late payment stays on your credit report for seven years, making it important to pay on time every time. 

Credit cards defer payments on everyday purchases. You should monitor your finances and establish a budget to avoid overspending. Keeping up with credit card payments helps you avoid most of the pitfalls of owning a credit card. On-time payments remove the disadvantages and allow you to tap into the perks. 

Making the minimum monthly payment will keep you in good condition. The credit bureaus will see a steady history of on-time payments and gradually increase your score. Transformations don’t happen overnight, but staying true to the minimum payment will help you in the long run. When you have extra funds, you should make a higher payment to address the remaining balance beyond the minimum payment. This approach decelerates interest accumulation in your credit card balance.

Even if you make on-time payments, a credit bureau may mistakenly label one of your payments as late. Credit report errors are rare, but it’s a good idea to check them occasionally. The three major credit bureaus — Experian, Equifax, and TransUnion — let you obtain a free copy of your credit report every year. You can alternate your requests to once every four months to ensure you never have to pay for a copy of your report. 

How Much a Credit Card Can Improve Your Credit Score

Opening a new credit card provides immediate benefits, such as a higher credit limit. The higher credit limit will improve your credit utilization ratio, and your credit history will gradually increase once you open your card. In addition, on-time payments and maintaining a respectable credit utilization ratio will strengthen your credit score in the long term. Credit score improvements vary, but if you pay your bill on time, your score will grow over time.

Get a Line of Credit Without a Credit Check

A credit card can help you build credit. It presents several advantages, and many issuers sweeten the pot with rewards programs. However, credit card issuers do hard credit checks before giving you a card. This credit inquiry will hurt your credit score, but there’s a better way to build credit.

Grain is a mobile app that makes it easier for anyone to build credit. Grain provides each user with a line of credit based on cash flow instead of credit score. That means no hard credit checks, and you get the same credit-building advantages. Grain can sync with your debit card to turn each transaction into an opportunity to increase your credit score.

Want to learn how Grain can improve your credit and provide an extra funding source? You can download the Grain mobile app today to get started.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

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