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How Credit Card Activities Impact Your Credit Score

At O1ne Mortgage, we prioritize educating our clients about financial health and credit management. Understanding how your credit card activities affect your credit score is crucial for making informed financial decisions. In this article, we will explore the various ways in which opening, using, and closing credit card accounts can impact your credit score.

How Opening a Credit Card Can Impact Your Credit Score

Opening a new credit card account can have several effects on your credit score, both positive and negative. Here are some key points to consider:

1. It Adds a Hard Inquiry to Your Credit File

When you apply for a new credit card, the lender will perform a hard inquiry on your credit report. This can temporarily lower your credit score by a few points. However, the impact is usually short-lived, provided you manage your credit responsibly.

2. It May Change Your Credit Mix

Credit mix, which accounts for about 10% of your FICO® Score, refers to the variety of credit accounts you have. Adding a new credit card can improve your credit mix if you don’t have other revolving credit accounts, potentially boosting your score.

3. It Reduces Your Average Age of Accounts

The average age of your credit accounts is a factor in your credit score. Opening a new account will lower this average, which could negatively impact your score. However, this effect diminishes over time as the new account ages.

4. It May Help Your Credit Utilization Rate

Your credit utilization rate is the ratio of your credit card balances to your credit limits. Opening a new credit card increases your total available credit, which can lower your overall utilization rate and positively impact your score.

How Using Your Credit Card Can Affect Your Score

Once you have a credit card, how you use it can significantly impact your credit score. Here are some important considerations:

1. It Adds to Your Payment History

Payment history is the most significant factor in your credit score, accounting for about 35%. Making timely payments on your credit card can positively impact your score, while late payments can have a detrimental effect.

2. It Will Affect Your Credit Utilization

Maintaining a low credit utilization rate is crucial for a good credit score. Aim to keep your utilization below 30%, and ideally below 10%, to maximize your score.

3. Not Using a Credit Card Can Affect Scores Too

Letting a credit card go unused for an extended period can lead to the issuer reducing your credit limit or closing the account. To avoid this, use your card for small recurring expenses and pay off the balance each month.

How Closing a Credit Card Can Hurt Your Credit

Closing a credit card account can have several negative effects on your credit score. Here are some key points to consider:

1. It May Hurt Your Credit Utilization

Closing a credit card reduces your total available credit, which can increase your credit utilization rate if you have balances on other accounts. This can negatively impact your score.

2. It May Affect Your Credit Mix

Closing a credit card can reduce your credit mix, which may have a slight negative impact on your score. However, this effect is usually minimal if you have other types of credit accounts.

3. It Will Eventually Affect Your Average Age of Accounts

When you close a credit card, it remains on your credit report for 10 years. After that, the account’s age no longer contributes to your average age of accounts, which could negatively impact your score.

Conclusion

Understanding how your credit card activities impact your credit score is essential for maintaining good financial health. By making informed decisions about opening, using, and closing credit card accounts, you can positively influence your credit score.

At O1ne Mortgage, we are committed to helping you achieve your financial goals. Whether you need advice on managing your credit or are looking for the best mortgage options, we are here to assist you. Call us today at 213-732-3074 for any mortgage service needs. Let us help you navigate the path to financial success.

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