How can your credit card affect your credit score?

What is a credit card? 

A credit card is a type of revolving credit. This means you can borrow money up to a maximum credit limit, pay it back over time, and then borrow again as needed. 

Credit cards don’t usually have a set repayment schedule – you can pay off some of or all of your balance whenever you want, subject to minimum repayments. 

Will credit cards show on my credit report? 

Your credit card will appear on the debt section of your credit report. 

Lenders will be able to see the following information:  

• Your credit limit  

• Your current balance (at the point in time when the information is sent to the credit reference agency)  

Simply having a credit card is unlikely to affect your credit score significantly. If you have a credit card but don’t spend on it, it will appear on your credit file as a balance of zero.  

Does applying for a credit card affect your credit score? 

Credit card applications could affect your credit score. 

When you make an application, the lender will look at your credit history to assess whether you will be a reliable borrower or not. The lender will usually carry out a hard credit check which will be visible on your credit report. 

A single hard credit check won’t make a significant difference to your credit score, but multiple hard credit checks in a short amount of time could mean your score goes down.  

Your credit card credit limit 

When you take out a credit card, the provider will give you a credit limit. This is the maximum you can owe on the card at any one time. 

To boost your credit score, you should aim to have a high-ish credit limit but only use a small proportion of it.  

Does increasing your credit limit affect your credit score? 

It’s a common misconception that increasing your credit limit will damage your credit score. In fact, the opposite is often true. 

If you increase your credit limit but keep your spending low, it looks like you’re using less credit as a proportion of your total spending. This makes you look less risky to lenders.  

Minimum payments explained 

The minimum payment on your credit card is the lowest amount you are required to pay towards your debt each month.  

The figure will be calculated monthly based on your credit card balance and will be shown on your statement alongside a due date. 

Not paying at least the minimum payment each month will result in your credit score going down. 

How a credit card could boost your credit score 

If you have never borrowed money before, responsible use of a credit card helps you build a borrowing history. This can increase your chances of being accepted for credit – and being offered the best deals – in the future. 

Responsible use means: 

• Staying within your credit limit 

• Making regular payments to reduce or clear your debt  

• Paying at least the minimum amount due each month 

• Not having a constant high balance on your card. 

Whenever possible, you should pay off your entire balance each month. Not only will this improve your credit score, but it will also mean you don’t pay any interest. 

Credit cards and your credit mix 

Having a credit card will affect your ‘credit mix’ and credit utilisation. 

Your credit mix might be made up of secured lending (i.e. mortgage) and unsecured lending (i.e. credit cards and overdrafts). Having a range of credit accounts shows you can manage different types of borrowing effectively.  

Minimal spending on your credit card could lower your credit utilisation ratio, which can boost your credit score. Your credit utilisation ratio is the proportion of your total available credit you are currently using.  

How a credit card could harm your credit score 

To protect your credit score, it’s important to use credit cards carefully. 

The following actions could cause your score to go down: 

• Going over your credit limit  

• Missing a minimum monthly payment 

• A constant high debt balance  

• Making multiple credit card applications in a short space of time