If you want a good credit score, you have to have and use a credit card. But, most importantly, you have to use it responsibly. Unfortunately, being responsible might sometimes not be enough to protect you from that old enemy known as credit card debt. That’s why many people choose to take a break from using their credit cards every once in a while. This is a good choice, especially if you don’t want any more debt in your life. But how does this affect your credit score? Will it help improve it, or will it cause it to drop?
In order to see how credit card activity, or inactivity in this case, affects your credit score, you need to understand what information is used in your credit report. The report includes your current balance, credit limit and whether you’ve made payments to your credit card provider on time. These factors make up about 80% of your credit score. Your credit report does not include any information regarding how often you use your credit card in any given month.
Your credit score will remain intact if you maintain a low balance relative to your limit, and, of course, if you make payments on time. This is what most of the people with the best credit scores do. They have those very good credit scores because they repeat this pattern over a long period of time.
You can use your credit card to improve your credit score, but don’t think that this is the only way. In fact, you should be aware that you could end up with more debt instead of a good credit score, if you rely on your credit card too much.
People care about credit scores because they can help you obtain loans good interest rates on loans. But the truth is that the loan approval process depends more on income than any other factors. If you have a high income and a low credit score, you’re just as likely to be approved for a loan as someone with low income and a great credit score.