Written by Randika B. Desai, CNN
Are you one of the millions of US consumers who hold a credit card?
If you have an active credit card, there’s good news — your credit score is likely to improve. A credit card can actually improve your score by increasing your credit limits and not applying for new cards all at once.
Thanks to a record number of banks, including JPMorgan Chase , Bank of America , Capital One , U.S. Bank and Western Union , the number of open credit cards rose in June to 19.1 million, as compared to 17.4 million in May, the most recent figures available from the Federal Reserve.
The increase comes as credit card spending is climbing, according to Richard Parkus, senior vice president and global head of credit cards at Standard & Poor’s Analytics.
“More credit cards means you have more options to pay the bill,” he said. “That balances the risk of overdraft charges and late fees when you have a higher credit limit — and credit card issuers clearly want to see you being responsible with your money.”
If you have an active credit card, your credit score is likely to improve. Credit: spookyguy / Shutterstock
There are no standards for consumers to meet to receive a credit card. New credit card applications can come from multiple sources. If you’ve never applied for credit before, there’s a good chance you could fall through the cracks.
“You might get approved for a credit card that is a return of an old card or for a secured card, which you may be pretty unfamiliar with,” said Heather Mancini, senior director of financial education at Credit Sesame. “Not all banks consider the average credit history and credit history history of the applicant when issuing a new card. In these cases, the history and experience of the credit card applicant may be too recent or offer limited historical data.”
Even if you are approved for a credit card, many cards come with complex terms and conditions. According to Parkus, it’s always important to read the fine print when opening a new credit card.
“A lot of customers will know that they’re going to get a reward for buying something, but that may not be how the cardholder receives the reward,” he said. “People should look at their full terms of the credit card and look at how they will use the card in terms of financial transactions.”
This practice of issuing rewards through a competitor’s rewards program isn’t common, but it’s a good practice, said Rebecca Frankel, director of Consumer Education at NerdWallet.
“If you have a competing brand loyalty program, that might be a good idea to bring that information up when you apply for a credit card,” she said. “It’s a good idea to ask the issuer when the rewards are going to roll out.”
If you are approved for a credit card, take the time to consolidate debt or work on improving your credit to make a long-term plan for lowering your interest rate and building credit, Parkus said.
“Sharing the utilization on your credit card is a good way to get more flexibility and for all new customers of any cards, a good idea is to set up automatic payment from your checking account so you have cash available when you do a purchase,” he said.
Payment of bills takes up a percentage of a credit card’s available credit, so careful paying can actually help your credit score.
“As you increase your credit limit, you reduce your utilization,” Parkus said. “It reduces how much you owe and it can improve your credit score — not just yours but also the credit of the credit card issuer.”
In many cases, having multiple credit cards will help your credit score. Credit card issuers are able to pull your credit report and may decide to provide you with an additional card.
“While most people may not choose to carry a balance, each time you do make a payment toward the credit card you have, you will show the issuer that you have the ability to pay the credit card,” Parkus said.
According to Mancini, people may think an active credit card may harm their credit score, but the opposite is true.
“It’s helpful that there are more ways for people to build their credit history, and also that it is possible to combine multiple accounts under one credit limit — so if you have a bad payment on one card but make a payment on another card that’s a zero balance, that will hurt your credit score,” she said.
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