A common trend in this day and age is to own multiple credit cards. If not managed well, it could drastically damage your Credit Score, making it awfully problematic for you to avail credit in future. Read on to understand how credit cards can decline your credit score.
Having multiple credit cards gives you a higher credit limit, putting you in a powerful position. But, with great power comes great responsibility and neglecting this can cause bad credit scores. If you’ve not been paying the bills regularly, credit agencies will make sure to reflect the same in your credit report and score. Missing payments by even a day will cause a backlash in your report. Lenders can then perceive you to be incapable of managing funds which will cause difficulties in attaining a loan in future. Considering that a good payment history constitutes to approximately 35% of your credit score, it is of great prominence that you make timely payments on your card.
Short Span Applications
Applying for credit cards in a short span of time can indicate that an individual is desperate for credit. Naturally, lenders consider it risky to loan to such customers. If you have already applied for multiple credit cards in a short span of time, make sure to make your payments religiously to revive your credit score in the coming months.
Increase in Debt
Over leveraging customers are individuals who have too much debt. Availing multiple credit cards raises your credit limit and can cause you to be over leveraged. This will again cause lenders to deny a loan due to the simple rationale that you are already in excessive debt.
Logically, it is safe to assume that the solution for having multiple credit cards is to close a few of them. However, this move would cause further harm to your credit score. Closing down credit cards will instantly decrease your credit limit which will also instantaneously cause a surge in your credit utilization. Your credit utilization ratio is your credit limit in comparison with how much of it you’ve used. A higher credit limit will have an adverse effect on your credit score. In this case, having multiple credit cards can be useful in the sense that one will have a higher credit limit.
As a rule of thumb, it is advised to have a good proportion of secured and unsecured loans. If you only have unsecured credit, you have an imbalanced credit history which may also play a role in affecting your credit score.
An inactive credit card is accounted for in your credit report separately. This also can cause a detriment in your credit score. A good option would be to make a small spend on your card and diligently repay it. Nevertheless, one must also note that if he/she is absolutely incapable of managing a card, it may be a better option to close it.
Your capability to pay off a loan is what a lender primarily looks at before loaning you the money. Making note and following the above mentioned points can be beneficial in convincing banks and other lenders that you are a disciplined and capable customer for them. Furthermore, you can also request for your credit report to analyse your errors and rectify them accordingly.
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