Those shiny pieces of plastic can be the best thing in the world, or the worst, depending on your point of view. Use them without discipline, and you will very quickly find yourself in debt. Use them wisely, avoiding impulse buys and paying off your bills very month, and they are the greatest and most convenient things in the world. Even better, they will prove to the credit bureaus that you are a financially responsible person, and your credit score will go up and up. Let's see how this happens.
Most credit reports begin life with a credit card. Whether you are a student or your bank introduced you to the wonderful world of credit, that very first application has been marked and compiled in a computer. Every month, another record will go on your new credit report, showing if you paid your bill on time, and how much you paid off. As you go through life, car loans, mortgages, bankruptcies and other financial and social information will be added to your report, newer items affecting your score more than older items.
Many financial actions comprise your credit score your total debt load as a percentage of your total credit limit, the age of your credit history, the frequency you apply for new credit, and how well you pay your bills off. As you can see, credit cards can be a factor in all of these actions.
If you are concerned with getting a better credit rating, there are a few factors to investigate. If you rule out past bad debt such as defaulted loans or a high debt load, take a look at how your credit card activity is reported. First, make sure your credit card company is actually stating your credit limit. If they are not, then your credit report will calculate your credit limit to be the highest amount you ever placed on your card. This will make it appear your debt load is too high, and your score will suffer.
Another option is that you may have cancelled one of your credit cards. As strange as this seems, this could have actually hurt your score! Why? Two things if that card had a long credit history, this source is now gone. The second thing is that your overall credit limit is now lower. The credit bureaus calculate the credit limit of all your cards together, so removing one will remove that extra credit.
Instead, if you are trying to get your finances under control, cancel your store credit cards (they aren't worth as much), and take one of your major cards out of your wallet and keep it in a safe place. Use it once or twice a month just to keep it active.
Article by CreditToTheWise