Credit cards or “revolving debt” plays a major role in your credit score. As a result, they also present opportunities to increase your credit score.

How Credit Cards Impact Credit Scores

Credit cards impact credit scores in multiple ways. First, the age of a credit card account factors into your score. Typically the newer the account the less it helps your credit score. Second, credit card utilization matters. This simply refers to how much a consumer uses a credit card. After a period of no utilization the positive aspects of a credit card account are not included in ones credit score.

Third, the number of credit cards may impact your score. Consumers with a very high number of credit cards are often penalized. In addition, the payment history on a credit card weighs in heavily on your credit score.

Proportionate Balances Impact Credit Score

However, typically the biggest and most malleable impact from a credit card comes from it’s proportionate balance. In other words, how much you owe on a credit card compared to the high limit of that credit card has a large impact on your credit scores. Simply put, lower proportionate balances promote higher credit scores. You improve your Proportionate balance in 1 of 2 ways:

The reason lower proportionate balances result in higher credit scores is simple. In fact, there are 2 primary reasons for this idea:

  • Consumers are “liquid”: in case of a cash emergency, the consumer has low balance credit cards to continue paying bills with
  • Obligations are lower: lower credit card balances equal lower monthly debt for a consumer

Use Credit Cards to Boost Credit Scores

Often credit cards present the best opportunity to quickly improve credit scores. In fact, given the right factors making adjustments to credit cards can significantly increase one’s credit scores in a relatively short period of time. However, this is not always the case. Every consumer’s credit profile and opportunities differ. Commonly, the 2 following ideas can possibly help increase one’s credit scores:

  • Paying down the balance
  • Increasing the high limit