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Is my credit card debt lowering my credit score?

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Debt, of any kind including credit card debt, has the potential to affect your credit score. However, whether that effect is positive or negative, depends on the decisions you make. Your credit score reflects your creditworthiness, which is why it is crucial for you to keep track of it.

A low credit score can often result in high-interest rates on new loans and may sometimes also cause your loan application to get rejected.

Can credit card debt affect credit score?

As mentioned above, Credit card debt can definitely impact your credit score. From applying for a credit card to paying off the credit card bills, every decision you take will either increase or decrease your credit score.

To stay financially healthy, you must understand that simple good finance habits can save you from a plummeting credit score.

How does using a credit card decrease my credit score?

1. When you apply for a credit card, the lending institution performs a credit pull to see your credit report. This credit pull reduces your credit score. However, this is temporary and can easily be recovered by simply using your credit card responsibly.

Keep in mind that when you pull your credit report, it’s referred to as a soft pull and has no impact on your credit score.

2. Another factor that can affect your credit score negatively is missing due dates. Missing even a single due date will drastically bring down your credit score.

3. Using most or all of your credit limit puts your credit score at risk. The credit utilisation ratio is an important factor for credit bureaus while calculating your credit score. It accounts for 30% of your score. Thus, a high credit utilisation ratio will reduce the credit score.

4. Having too many credit cards to your name is also not a great idea if you’re not disciplined with your finances. If you hold multiple credit cards, add their limits and the amount you have borrowed on them all. If your credit usage is higher than 30%, it might also pull down your credit score.

Your constantly falling credit score is a sign of poor financial health. Periodically, check your credit score to keep your financial health in check. If you spot an issue, take the necessary measures to improve your credit score.

Sometimes, it might be more difficult for you to repair your credit score, seek professional help. If your low credit score is the result of an outstanding credit card balance that you’re unable to pay off, we can help.

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