Do you struggle to pay off your credit card each month? Do you max out your cards?
Let’s review your credit card usage and ask 3 questions:
How does my credit card usage affect my credit health?
Each card account has a certain limit up to which a lender will allow you to spend. The closer you get to that limit, the more nervous a lender becomes about your likelihood of paying your bill. Spending beyond half your credit limit will negatively affect your credit health. Let’s say you have a credit card with a limit of $5,000. Spending beyond $2,500 each month impacts your credit health because the lender who issued the card knows that you are more likely to default the closer you get to $5,000.
How does opening a new account affect my credit health?
Let’s say you click “submit” on an application for a new credit card. The issuing bank immediately requests your credit report in what is known as a “hard inquiry.” Remember that “hard inquiries” will be listed on your credit report going forward, so be careful. Hard inquiries on your report are treated by future lenders as a small negative. Banks know that someone applying for a lot of credit during a short period of time are more likely to default.
Does closing a credit card affect my credit health?
Closing a credit card account will likely have a short-term negative impact on your credit score. Lenders get nervous when it looks like you are unable to manage the same level of debt as before. In the long run, however, your credit health is better when you are able to show successful management of less debt over a long period of time.
For readers near Greenville, SC, consider hiring a personal financial coach.