Credit Cards and Credit Scores: A blog on exactly what credit cards are, how they work, and how they affect your credit score.

A credit card is a convenient payment method that can help you build your credit history if used responsibly. It is a great way for people to make purchases and carry balances over a period of time. Your credit score is based on your payment history and debt level and can determine whether or not you are eligible for other financial products and at what interest rate. Here’s what you need to know about how credit cards work, how to select one, and how to use them in a way that will help—not hurt—your credit scores.

What is a credit card? 

A credit card is a simple, yet not ordinary, plastic card that enables users to make purchases without withdrawing any cash from their bank account. Instead, you can use it to pay for products and services. Credit cards are given out by banks and other financial institutions and retailers, charities, and clubs. 

How do credit cards work? 

 Let’s look at some of the terms that will assist you in understanding how credit cards work; 

• Once approved for credit card use, the lender will determine your credit limit. This is the amount of money you can spend on a credit card. Your financial situation determines the quantity of your credit limit. When you use your credit card to make a transaction, the money is automatically credited to your account. The term “balance” is used to describe how much you owe. 
• Interest is an important part of how credit cards operate. When you use a credit card, you borrow money from the issuer. It’s similar to a loan, and it’s only applicable if you don’t make your full payment. 

How Credit cards affect your score.

People’s credit scores are based on how likely they are to fail on a loan or credit card. Depending on the information you provide, lenders can decide whether or not to grant you credit, the terms of that credit, or even the interest rate you’ll be charged. Your credit card debt is one of the major determinants of your credit score. That’s why you shouldn’t max out your cards. If you use up all of your credit limits on your card, your credit score may suffer. 

It is a good practice to have credit cards without using them or taking out an amount you can easily pay back to increase your credit score.

In short, your credit card balances directly affect your credit score and, eventually, your ability to obtain a new credit card or loan. Your credit score fluctuates along with the credit card amount reported to the bureaus.