How Does Credit Card Interest Accrue?

If you have a credit card, you might be wondering how is your credit card's interest calculated and how does it accrue. The post provides you with everything you need to know about how credit card interest accrues.

How Does Credit Card Interest Accrue?

If you don't pay your credit card in full at the end of your billing cycle, interest on your credit card balance accrues on a daily basis, meaning at the end of the day, you're charged interest on the balance and the interest charged becomes part of the balance at the end of the day. This continues throughout your billing period.

You can calculate the amount of interest you're being charged by dividing your APR by 365 days and then multiplying the resulting number by your current credit card balance. This should give you the amount of interest you owe on a daily basis.

For example, if you have a $1,000 credit card balance on a credit card with a 17% APR, you can calculate how much daily interest accrues by dividing 0.17 by 365 days, giving you $.000466. You then multiply your $1,000 by $0.000466, giving you a total of $0.466 of interest per day. To figure out your monthly interest rate multiply the resulting number by 30 days, giving you a total of $1,013.97 at the end of the month.

You can use this method to calculate how much interest accrues on your balance on a daily basis or a monthly basis.

CSP Pro Tip: That said, you should be careful when calculating the amount of interest you owe on a monthly basis because with some credit cards, interest compounds on a daily basis, meaning that at the end of the day, interest is charged and becomes part of the balance for the next day. This continues throughout your entire billing period, making it difficult for some people to pay off their credit cards. Calculating compounding interest can be quite complicated.

For those of you who are new to interest, interest refers to the amount of money that you will pay for borrowing money from your card issuer to purchase goods or services.

How Much Interest Are You Paying On Your Credit Card Balance?

You can figure out how much interest you're paying on your credit card balance by looking at the Annual Percentage Rate, also known as APR. APR is not standard among all cardholders. In fact, every person has a different APR, depending on his or her creditworthiness.

Although APR appears as an annual rate, credit card issuers apply the APR rate on your balance at a daily rate.

For example, if you have a credit card with an APR of 17%, this means that you will pay 17% of the balance on your credit card in interest. So, if you were to keep a balance of $1,000 on your credit card for a year, you would end up paying $170 in interest over the course of a year.

When Does Interest Begin Accruing On Your Credit Card?

Card issuers often give their cardholder a grace period during which to pay the entire balance before the due date. If the cardholder does not pay off the balance before the due date, interest begins accruing on the balance. So, if the balance is paid off by your credit card's due date, no interest is charged.

But, if you do not pay off the entire balance, interest begins accruing on the remaining amount that's due until it's ultimately paid off. In the event that you fail to make the payment, your card issuer may charge you a penalty interest rate that is significantly higher than your regular APR.

For example, if your regular APR is 15% and you fail to make your payment on time, your card issuer may charge you a penalty APR of 29.99% instead.

Card issuers and financial institutions know that most people leave a balance on their credit cards, and so interest is very lucrative for card issuers. In fact, American cardholders have more than $6,000 in credit card debt, so it makes sense to understand how credit card interest works.

Interest Accruing on Credit Card Cash Advances

If you use your credit card for regular purchases, you are charged the regular APR. However, if you make a cash advance, a separate, higher APR applies only to the amount you took out as a cash advance. For example, if you have a Bank of America Credit Card, the regular APR maybe 15.99% while the APR for cash advances may be 23.99%, making it significantly more expensive to use your credit card for a cash advance. In addition to paying a higher APR on cash advances, card issuers often charge a fee for taking out a cash advance, ranging from 3% to 5% of the cash advance amount. For example, if you were to take out a $1,000 cash advance, you may be charged $50 for the cash advance, and a higher interest may immediately apply to the cash advance amount.

How To Avoid Having Interest Accrue On Your Credit Card Balance?

You can avoid having interest accrue on your credit card balance by paying your balance before the due date. In fact, most credit card issuers provide cardholders with a grace period of approximately one month to pay off the balance. If the balance is paid off within the grace period, no interest accrues on the balance. However, if you leave a balance on your credit card, interest will begin accruing after the payment due date.

The second option to avoid paying interest on your credit card balance is to open a 0% APR credit card. There are many credit cards on the market that promise an introductory 0% APR credit card, allowing users to avoid paying interest on their credit card balance for a limited period of time that usually ranges from 6 months to 18 months. After the introductory APR period ends, you are required to pay interest on the balance left on the card.

In the event that you don't want to or cannot open a 0% APR credit card, you should consider paying more than the minimum payment on your credit card. Paying more than the minimum payment reduces the amount of interest you will pay on the balance while reducing the overall balance on your credit card.

Paying down the balance on your credit card will not only lower the amount of interest you pay, but it can also potentially improve your credit score.

This is so because paying down your credit card balance reduces your credit utilization. Your credit utilization makes up 30% of your credit score, the lower your credit utilization (how much of your available credit you're using), the better your credit score will be.

So, paying down the balance on your credit card can potentially improve your credit score in addition to reducing the amount of interest you pay on the balance.

What Factors Determine the APR On Your Credit Card?

The APR that will apply to your credit card depends on your creditworthiness. So, the higher your credit score and the higher your income, the better the APR that you will qualify. Likewise, having a low credit score may get you approved for a credit card, but your APR will likely be high. Typically, those who have excellent credit (740 or higher), will be approved for the lowest possible APR. However, if your credit score is less, you will usually pay a higher APR.

For example, a credit card issuer may advertise credit cards as having an APR of 11.99% to 20.99%, applications with the highest credit ratings will receive an APR at the lower end, while other applications will receive an APR towards the higher end of the spectrum.

How Can You Pay Off Your Credit Cards To Avoid Paying Interest?

You should pay your credit card bill before the payment due date. You should not wait until the day before the due date to pay your credit bill. Paying by the due date allows you to avoid paying any interest on your credit card balance.

Also, if you have the money, you should try paying off purchases as soon as you make them, or try making multiple payments throughout the month to keep your credit card balance at a minimum.

If you don't have the funds to pay off your credit card entirely, you should explore the option of applying for a balance transfer card with 0% APR. A balance transfer card can be a great tool to pay off your credit card balance quickly. This is so because by transferring your balance to a credit card that does not charge interest, more of the money you pay towards lowering your balance rather than going towards interest. This helps you quickly pay down your balance while costing you less money.

Frequently Asked Questions (FAQs)

1. Is credit card interest added daily?

Yes, most card issuers compound interest on a daily basis, meaning you're charged interest on a daily basis and that interest is added to the balance. You then pay interest on the entire balance, including the newly added interest. This process continues as long as you carry a balance on your credit card.

2. Do I get charged interest if I only pay the minimum payment?

If you only pay the minimum payment on your credit, leaving a balance on your credit card, you will pay interest on the remaining balance if it's not paid off by your payment due date. If you pay the balance before your due date, you will not be charged any interest. But, if you pay after your due date, you will be charged interest.

3. Is credit card interest compounded daily or monthly?

Most credit card issuers compound interest on a daily basis, making it expensive to carry a balance on your credit card. To avoid paying a lot of interest, you should strive to pay off your credit card at the end of the month before the payment due date to avoid paying any interest.

4. What is the usual minimum payment for a credit card?

The minimum payment on your credit card is usually 1% to 2% of your credit card balance if your balance exceeds $1,000. Typically, if your balance is below $1,000 you're minimum payment will be set as a minimum of $25. Paying only the minimum payment on your credit card makes it very difficult to pay off your balance within a short period of time. For this reason, most card issuers recommend making more than the minimum payment on your credit card.


Does Paying Interest Build Credit?

If you have a persoanl loan, student loan, credit card, or auto loan, you might be wondering whether paying interest on such debts build credit? This post provides you with everything you need to know about interest and building credit.

Does Paying Interest Build Credit?

Paying interest on a loan, credit card, or any other type of debt does not build credit. That said, making timely payments on personal loans, credit cards, auto loans, and even student loans does build credit because your payment history accounts for 35% of your credit score.

There is a common myth out there that paying interest builds credit, but this is far from the truth. Paying interest does not build credit, it's the act of borrowing money and paying your monthly payment on time that builds credit.

In fact, the credit scoring models do not take interest into account when calculating your credit score. Instead, the biggest factor that affects your credit score is your payment history. Your payment history accounts for 35% of your credit score.

So, if you borrow money, whether via personal loan, student loan, auto loan, or credit card and you make your monthly payments on time, you will build good credit. So, although you're paying interest on the money you've borrowed, paying interest has no impact on your credit. Instead, it is the act of making timely payments that build credit.

For example, if you had a 0% interest credit card and you borrowed money and repaid, you would still build credit by making the payment on time even though you're paying no interest.

So, the next time your friend tells you that you should keep a balance on your credit card to build credit, you now know that keeping a balance to pay interest does not build credit. Rather, focus on making your payments on time and keeping your balances low will help you build credit.

Why Doesn't Paying Interest Build Credit?

Paying interest does not build credit because the interest you pay is not reported to the credit reporting bureaus and the credit scoring models do not factor in the interest that you pay into your credit score. So, you could be paying a very high interest rate and it will have no impact on your credit score.

So, paying interest is not a smart move, you should strive to pay as little interest as possible because that's only money you're paying to borrow money, it has no impact on your credit whatsoever. The smart move is to look for accounts and loans that charge you as little interest as possible so that you can borrow money for less money.

Does Carrying a Balance On Your Credit Card Build Credit?

There is another common myth out there that if carrying a balance on your credit card is good for your credit score because you pay interest. We are here to set the record straight and tell you that carrying a balance on your credit card is not good for your credit score.

Typically, the credit scoring models prefer it when you utilize as little of your available credit as possible. This is so because your credit utilization accounts for 10% of your credit score. So, the less credit you use, the better your credit score will be.

So, if you're leaving a balance on your credit card to improve your credit, you should instead pay off your credit card for the best impact on your credit score.

As a rule of thumb, you should utilize less than 10% of your available credit and never exceed 30% credit utilization.

If you exceed 30% credit utilization, you will notice a significant drop in your credit score.

For example, if you have a credit card with a $10,000 credit limit, you should keep your balance below $1,000 for the best impact to your credit score. However, if your balance exceeds $3,000 or 30% of your credit limit, you will notice a drop in your credit score.

So, if you have the cash, pay down your credit card balances to improve your credit score because the credit scoring models like it when you pay down balances and keep them as low as possible.

As a rule of thumb, it's best to charge only as much as you can afford to pay off every month because this will help you keep your credit utilization as low as possible, providing a decent boost to your credit score.

What Factors Impact Your Credit Score?

Let's discuss the most important factors that affect your credit score:

1. Payment History

As previously mentioned, your payment history accounts for 35% of your credit score. So, making your payments on time is literally the best thing you can do to improve your credit score and build excellent credit. That said, missing even a single payment on a credit card or loan can cause significant damage to your credit. So, make sure to make your car loan, credit card, and student loan payments for the best boost to your credit score.

2. Credit Utilization

The second most important factor affecting your credit score is your credit utilization rate. This factor accounts for 30% of your credit score, and so you should keep your credit utilization as low as possible for the best impact to your credit score. You can calculate your credit utilization by dividing the total balances of your credit cards by the total credit limits of your credit cards. Typically, you should use no more than 10% of your credit limit and never exceed 30% credit utilization. If you use more than 30% of your available credit, you will notice a significant drop in your credit score. So, keep your balances low now that you know that paying interest does not build credit.

3. Length of Credit History

The third factor impacting your credit score is the average age of all of your accounts. This factor accounts for 15% of your credit score, and the older the ages of your accounts, the better your credit score will be. This is so because the credit scoring models reward those who have older accounts open. So, if you happen to have a credit card that you rarely use, but it's an old account, you should try to keep it open for the best impact to your credit score.

4. Credit Mix

The fourth factor impacting your credit score is your credit mix. Your credit mix makes up 15% of your credit score and it refers to the diversity of the type of accounts you have on your credit report. For example, if you have diverse accounts, such as auto loans, student loans, credit cards, and a mortgage, this is the diversity that this factor likes and rewards you for having.

5. New Credit

The fifth and final factor affecting your credit score is the number of new accounts you've opened and hard inquiries that you have on your credit report. This factor makes up 10% of your credit score. The less new accounts you've opened and the less hard inquiries you have on your credit report, the better your credit score will be. Whenever you apply for a credit card or loan, a hard inquiry is added to your credit report, lowering your credit score. So, refrain from applying for too many accounts within a short period of time to improve your credit score.

The Bottom Line

The bottom line is that paying interest on things such as credit cards, personal loans, car loans, and other types of debt does not build credit. Paying your credit cards and loans on time is what builds your credit. You should strive to pay as little interest as possible because that will save you money. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Does paying interest hurt your credit score?

No, paying interest is a very common part of borrowing money and repaying it, so it does not hurt your credit score. Also, the credit scoring models do not take into account the interest you pay to borrow money, so it does not hurt, nor does it help your credit score.

2. What payments help build credit?

Payments on items, such as credit cards, personal loan, car loans, mortgages, and student loans build credit.

3. Is it better to pay off your credit card or keep a balance?

It's almost always better to pay off your credit card than keep a balance for your credit score. This is so because lowering your credit utilization (how much of your available credit you're using) results in a higher credit score. So, to raise your credit score, reduce the balances on your accounts. Paying them off is one of the best things you can do for your credit.

4. Should I pay interest to improve my credit score?

No, you should not because paying interest does not improve your credit. Making timely payments on your credit cards and loan is what improves your credit score. So, make your payments on time.

5. Does paying interest on student loans build credit?

No, paying interest on student loans alone does not build credit. However, making your student loan payments does build credit because student loan payments are reported to the credit reporting bureaus and are factored into your credit score.


Does Removing Someone As An Authorized User Hurt Their Credit?

If you've added a close friend or relative as an authorized user to one of your credit cards, you might be wondering whether taking them off as an authorized affects their credit. This post provides you with everything you need to know as to how removing someone as an authorized user impacts both their credit and your credit.

Does Taking Someone Off As An Authorized User Hurt Their Credit?

Taking someone off as an authorized user from your account could hurt their credit score, especially if they haven't built their own credit history using their own accounts. The effect that taking off someone as an authorized user depends on the age of their accounts and their credit utilization. The older the person's accounts and the lower the credit utilization, the less of an impact there will be to their credit.

Removing someone as an authorized user from your account removes the account from their credit report as if it were never there. The credit score is then determined by the accounts remaining on the person's credit report.

If the person has built their credit by opening loans and credit cards and making timely payments, the effect on their credit score will be small, especially if they've had open accounts that have always been paid on time for a long period of time.

However, removing someone who has few accounts open may cause a big point drop. It all depends on what other accounts the person has on their credit report.

CSP Pro Tip: That said, if the primary cardholder has made late payments on the account and/or keeps a high balance on their credit card, removing an authorized user from the credit card account could actually help their credit score. This is so because removing them as an authorized user removes the credit card account from their credit report, eliminating the effect the account has on the authorized user's credit score.

Why Does Removing Someone As An Authorized User Lower Their Credit Score?

Removing someone as an authorized user from your credit card can lower their credit score because removing someone as an authorized user will remove the credit card account from the authorized user's credit report, forcing the credit scoring models to rely only on other accounts that the authorized user has on his or her credit report.

For example, removing some as an authorized user from your credit card reduces the amount of available credit that the authorized has, causing the person's credit utilization to increase.

An increase in credit utilization can cause the authorized user's credit score to drop because credit utilization makes up 30% of your credit score. Whenever credit utilization (use of total available credit) increases, a person's credit score drops.

As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30% credit utilization. Exceeding 30% credit utilization can cause a dramatic drop in your credit score.

So, for this reason, removing a person as an authorized user could hurt their credit score if the credit utilization significantly increases.

Now, if the authorized user has other credit cards with low balances, removing them might not affect his or her credit score. But, if the authorized user is carrying a balance on his or her other credit cards, removing them as an authorized user could cause an increase in credit utilization, lowering their credit scores.

A second reason that taking someone off as an authorized user can lower their credit score is because it may shorten their credit history. This is especially true if the authorized user has not opened his own accounts.

This is so because account age makes up 15% of a person's credit score. Typically, adding someone as an authorized user boosts their overall account age. So, by removing them from your credit card, you are potentially shortening their average account age, lowering their credit score. So, for this reason, you should consider this factor before removing someone as an authorized user from your credit card, especially if they don't have other accounts open.

A third reason that removing someone as an authorized user could lower their credit score is that it removes the account from their credit report, removing the positive payment history behind the account. Payment history accounts for 35% of a person's credit score. So, removing a person as an authorized user could cause their credit score to drop because the payment history is removed along with their status as an authorized user.

Should You Remove a Person As An Authorized User?

It's really up to you whether you want to remove someone as an authorized user from your account. We've provided you with some of the things that you should consider before removing a person as an authorized user.

That said, there are some valid reasons as to why you may want to remove someone as an authorized user.

The biggest reason that you may want to remove some as an authorized user is that you, as the primary cardholder, are liable for any charges that the authorized user makes on your credit card. So, you might want to remove them to limit your liability for their purchases.

For example, if you added your daughter, son, or close friend to your credit card, and they've built their own credit, it may make sense to remove them from your credit card.

Also, if you are no longer on good terms with the authorized user, it makes sense to remove them from your credit card because you are liable for repaying any purchases they make using your credit card account.

Why Do People Add Others As Authorized Users On Their Credit Card Accounts?

People often add a person who has not established his credit history to their account as an authorized user because doing so adds the credit card along with the entire account history to the authorized user's credit report, boosting their credit score and instantly providing them with credit history.

That said, when you add someone as an authorized user, the authorized user is not responsible for making payments on the credit card. Only the primary account holder is responsible for making payments on the credit card.

If the primary account holder fails to make payments on the account, late payments will be added to both the primary account holder's credit report and the authorized user's credit report.

That said, removing an authorized user removes the account from their credit report along with any associated negative information on the account.

How To Remove Yourself As An Authorized User?

You can remove yourself as an authorized user by contacting the card issuer via telephone and asking them to remove you as an authorized user from the credit card account. Some card issuers offer authorized users online access to the account, so if you have online access, you may be able to remove yourself online. That said, if you do not have online access, you can always remove yourself as an authorized user by contacting the card issuers using the number on the back of your credit card.

After removing yourself as an authorized user, the account will be removed from your credit report within a short period of time.

That said, before removing yourself as an authorized user, you should consider the disadvantages of doing so.

If the account was poorly managed by the primary account holder, it makes sense to remove yourself. However, if the account has a good history, removing the account may hurt your credit score, depending on the other accounts you have on your credit report.

After removing yourself as an authorized user, you should review a copy of your credit report. The account should be removed from your credit report within 30 to 60 days of requesting removal. If the account has been removed from your credit report, this means that you are no longer an authorized user.

However, if more than 60 days have passed and the account still appears on your credit report, chances are that it has not been removed. If the account still appears on your credit report, contact the card issuer again and inquire about whether they've removed you from the credit card.

Frequently Asked Questions (FAQs)

Q: How long does it take for an authorized user to be removed from a credit report?

It could take up to 60 days from the date you removed yourself as an authorized user for the account to be removed from your credit report. It all depends on how quickly your card issuer reports the changes to the credit reporting bureaus.

Q: When should you remove an authorized user from your credit card?

You should remove an authorized user from your account if you no longer want to be liable for purchases the authorized user makes or if you've severed the relationship between yourself and the authorized user.

Q: How does adding an authorized user affect the primary cardholder's credit?

Adding an authorized user has no effect on the primary account holder's credit because nothing changes on the primary cardholder's account. That said, if the authorized user charges too much on the credit card, this could increase your credit utilization, lowering your credit score. It is solely the primary account holder's responsibility to make payments on the credit card.

Q: Can you improve your credit by removing an authorized user?

No, you cannot improve your own credit by removing an authorized user. However, if the authorized user is making charges that you don't want to pay, removing them and paying off the balance on your credit card could improve your credit.


Does Making the Minimum Payment On Your Credit Card Hurt Your Credit Score?

If you have a credit card, you might be only making the minimum payment, and so you might be wondering does making only the minimum payment affect or hurt your credit? This post provides you with everything you need to know about only making the minimum payment on your credit card.

Does Making Only The Minimum Payment Hurt Your Credit?

Making only the minimum payment on your credit card keeps your account in good standing, however, if your credit card balance substantially increases, this will increase your credit utilization, possibly lowering your credit score.

You should always strive to keep your credit utilization (how much of your available credit you're using) below 10% and never exceed 30%. If you use more than 30% of your available credit, you will notice a drop in your credit score.

Although making the minimum payment on your credit card keeps your account in good standing because it results in positive payment history being reported on your credit report, if you accumulate too much debt on your credit card, you could see a drop in your credit score.

So, making only the minimum payment can indirectly hurt your credit score. For your payment to positively affect your credit score, you should try to make more than the minimum payment to reduce your credit utilization.

So, what exactly does credit card minimum payment mean?

Your credit card minimum payment is the least amount of money that you are required to pay to keep your account in good standing. Typically, when you apply for a credit card, you sign a credit card agreement, agreeing to make the minimum payment on your credit card.

Failing to make the minimum payment on your credit card will result in a late payment being added to your account status, significantly lowering your credit score.

In fact, a single late payment can lower your credit score by 100 or more points. The higher your credit score, the more your credit score will drop.

Paying your credit card late lowers your credit score because your payment history makes up 35% of your credit score. If you make your payments on time, this factor will boost your credit score. On the flip side, missing payments can cause significant damage to your credit. So, make sure to make your payments on time even it means only making the minimum payment to prevent your account from being reported as late.

How Does Making Only The Minimum Payment Affect Your Credit Score?

Your payment history makes up 35% of your credit score, so making the minimum payment on your credit card actually helps you build positive payment history, which helps your credit score. That said, the amount of your minimum payment has no impact on your credit score, so whether your minimum payment is low ($25) or high ($500+), the impact on your credit is the same.

Increase in credit utilization rate

That said, if you accumulate too much debt on your credit card, the accumulation of debt could lower your credit score as it raises your credit utilization rate.

As a rule of thumb, you should use less than 10% of your available credit and never exceed 30% credit utilization.

If you utilize more than 30% of your available credit, you will notice a significant drop in your credit score.

This is so because your credit utilization makes up 30% of your credit score. So, if you don't pay down your credit card balances by paying more than the minimum payment, you could lower your credit score if the balance on your account continues to grow. This is especially true if you exceed 30% credit utilization.

One of the best things you can do to improve your credit score is to pay off your credit cards. This is so because you will be utilizing 0% of your available credit, which provides an excellent boost to your credit.

Paying more in interest

That said, if you're only making the minimum payment on your credit card, you should keep in mind that you'll be paying more in interest on the balance that you're carrying. This is so because interest charges apply to any balance that you leave on your credit card unless you have a credit card with a 0% introductory APR where you don't pay interest for a limited period of time.

Paying down your credit card debt will take significantly longer

Additionally, if you're only making the minimum payment on your credit card, it will take you significantly longer to pay off your card.

Should You Make a Payment Larger Than Your Minimum Payment?

Even though only making the minimum payment keeps your account in good standing, you should consider making more than the minimum payment on your credit card to reduce the balance on your account.

Reducing the balances on your credit card accounts is great for your credit score because your credit utilization (how much of your available credit you're using) makes up 30% of your credit score. The lower the balances on your credit cards, the better your credit score will be.

If you only make the minimum payment on your credit card, your credit card balance may continue to increase, lowering your credit score.

On the other hand, paying more than the minimum payment helps you keep your credit card balances as low as possible, helping your credit score by reducing your credit utilization.

Additionally, lenders like seeing that borrowers are making more than the minimum payment. They can see the amount of your last payment because it appears on your credit report. If a lender sees that you've made a payment that's larger than your minimum payment, they will view this positively when deciding whether to extend credit to you or lend you money.

That said, if you're working with a small budget or are going through tough financial times, making the minimum payment is perfectly fine as it will keep your account in good standing, which is extremely important to maintain a good credit score.

How to Make More Than the Minimum Payment On Your Credit Card?

You can make more than the minimum payment on your credit card by cutting back your spending on items that are not necessary and reallocating those funds to paying down your credit card. This allows you to pay down your credit card balances faster by making more than your minimum payment.

The second thing that you can do to pay more than the minimum payment is to freelance or get an additional job. This will help you allocate more money towards paying down the balances on your credit card to improve your credit score.

The third thing you can do to reduce your minimum payment and pay down your balances is to refrain from using your credit card until you've lowered the balance on it. This prevents you from adding to your credit card balance and helps your pay down your balance faster.

How is the Minimum Payment On Your Credit Card Calculated?

If you have a credit card balance below $1,000, you will probably see a minimum payment of $25. However, if you have a balance that exceeds $1,000, your minimum payment will likely be set at 2% of your balance. For example, if you have a $2,000 balance on your credit card, your credit card payment would be 2% of $2,000, which comes out to $40. In the event that you owe less than $25 on your credit card, the minimum payment will be set at the balance due. For example, if you only spent $15 on your credit card, your minimum payment will be set at $15.

Frequently Asked Questions (FAQs)

1. What happens to your credit score if you only make the minimum payment on your credit card?

Making the minimum payment on your credit card ensures that your account remains in good standing. However, only paying the minimum payment can increase your credit utilization since you're not significantly paying down your balance, increasing your credit utilization. An increase in credit utilization can lower your credit score, especially if you've exceeded 30% credit utilization.

2. Is it better to only make the minimum payment or pay your card in full?

It is better for your credit score to pay your credit card in full. Making a full payment results in a 0% credit utilization on your account, possibly raising your credit score.

3. What happens if you only pay the minimum payment on your credit card?

If you only make the minimum payment, your account is reported as paid on time. However, you will likely continue to carry a balance. If your credit card balance increases too much, your credit score could drop.

4. Does paying more than the minimum payment help your credit score?

Although merely paying more than the minimum payment does not boost your credit score. If you pay down a significant portion of your credit card balance, you should notice an improvement in your credit score.


What Happens To Your Old Credit Card When You Make a Balance Transfer?

If you've made a balance transfer to an old credit card, you may be wondering, what happens to your old credit card after making a balance transfer? We will explain this in much detail below.

What Happens To Your Old Credit Card When You Make a Balance Transfer?

When you perform a balance transfer from an old credit card to a new credit card, the card issuer of your new credit card moves your balance from your old card to your new credit card by paying off the balance on your old card and charging the amount to your new credit card plus the balance transfer fee.

Transferring your balance from an old credit card with high interest to a new credit card with a 0% introductory interest rate can be a great way to pay off your balance since you're only paying the principal. You're not being charged interest on the outstanding amount that's due.

That said, performing a balance transfer does not automatically close down your old credit card. The only thing that will happen is that your debt is paid off only if you were able to transfer over the entire amount that was due on the card.

Your ability to completely pay off your old car depends entirely on the credit limit of your new account. If your new account has a credit limit that's higher than the amount you want to transfer over, you will be able to transfer the entire balance to your new card. However, if your credit limit does not exceed the amount on your old car, you will not be able to transfer the entire balance to your new card.

Should You Close Your Old Credit Card After Making a Balance Transfer?

If you make a balance transfer that completely wipes out the debt on your old credit card, you will be able to close that credit card. But, the question then is whether you should close your old credit card? Before closing an old credit card that is in good standing, you should know the impact that closing a credit card has on your credit score.

Closing a credit card can potentially lower your credit score because it can increase your credit utilization, and whenever you increase your credit utilization, you will notice a drop in your credit score. Your credit utilization refers to how much of your available credit you're using, the lower your credit utilization, the better your credit score will be. Your credit utilization accounts for 30% of your credit score.

When you close down a credit card, you're reducing the amount of total available credit that you have thereby increasing your credit utilization. When your credit utilization increases, your credit score will drop. So, keeping an old account open may be worth it to keep your credit utilization as low as possible to keep your credit score as high as possible.

That said, if you want to close down your old credit card to prevent yourself from racking up more debt, then closing the account may be worth it. But, you should keep in mind that your credit score may drop as a result of closing down your old credit card.

Also, it's worth noting that closing down your old credit card does not remove it from your credit report. If you made all of your payments on time on your old credit card, it will remain on your credit report for 10 years from the date you close down your credit card.

However, if you've missed payments on your old credit card, it will remain on your credit report for 7 years from the date you missed your first payment on the card. After the 7 year period, it will automatically be removed from your credit report.

What Are Some Common Reasons For Transferring a Balance From An Old Credit Card to a New Credit Card?

Here are some common reasons for performing a balance transfer from an old credit card to a new credit card:

1. Reduce the Amount of Interest That You Pay

Most people perform balance transfers from an old credit card to a new credit card to take advantage of promotional interest rates to reduce the amount of interest they're paying. For example, if you have an old credit card with an interest rate of 17% and your new credit card has a promotional 0% interest rate for 12 months, it makes sense to transfer over the balance to your new card because you will not pay any interest on the balance for 12 months. This makes it significantly easier to pay down the balance on your credit card since you will avoid paying any interest on the balance for 12 months.

2. Debt Consolidation

If you open a balance transfer card that has a high credit limit, your new card can be used to consolidate debt from several credit cards onto a single balance transfer card. This makes it significantly more simple by allowing you to see all your debt on a single credit card. Also, it makes it easier to manage your debt. For example, instead of having three credit cards to manage, you can consolidate your debts onto a single credit card, enabling you to manage all of your debt by paying down one credit card.

3. Utilize Balance Transfer Card to Get Out of Debt

Since balance transfer cards often come with an introductory 0% APR that typically lasts for anywhere between six and twelve months, this can be a great opportunity for you to pay down your balances to get out of debt faster. That said, to benefit from a balance transfer card, you must resist the temptation of adding to your debt by charging items on your balance transfer card. Use the introductory period to pay down as much debt as you possible can.

How To Perform a Balance Transfer?

The first step to perform a balance transfer is to either using an existing card or open a new credit card that provides you with the ability to perform a balance transfer at an introductory 0% APR. If you don't have a credit card that permits balance transfers, look for a new card that does permit them. When searching for a good credit card, check to see how long the introductory 0% APR period lasts. Most credit cards offer anywhere from six months to eighteen months.

Once you have a balance transfer card, contact your card issuer to perform a balance transfer. That said, before performing a balance transfer, you should keep in mind that most card issuers charge a 3% to 5% fee of the total amount to be transferred. For example, if you want to transfer a balance of $10,000 from your old credit card to your new balance transfer card, your card issuer may charge you a 3% fee that comes out to $300 just for performing the balance transfer.

Once you know the fee and agree to it, perform your balance transfer by contacting your card issuer and providing them with the information they need to complete the balance transfer.

What Should You Do After Requesting a Balance Transfer?

After requesting to transfer your balance from an old credit card to your new credit card, you should keep the old account open and continue making timely monthly payments on your card until the balance is paid off. You should continue to make at least the minimum payment on your old credit card until the balance transfer goes through because your payments will still be due. Not making your payment on the due date could cause the account to become late, causing significant damage to your credit. After the balance transfer is complete, you have the option of either closing the card or keeping it open. If you want to maintain a high credit score, many experts suggest keeping old accounts that are in good standing open because they provide a boost to your credit score.

Frequently Asked Questions (FAQs)

1. Does a balance transfer close your old credit card?

No, a balance transfer does not close your old credit card. Your old credit card will remain open after transferring a balance from it to a new credit card. It is up to you to close your credit card after a balance transfer. That said, if you have a credit card that has been open for a long period of time and is in good standing, you should keep your card open for it to continue to have a positive effect on your credit score.

2. Can you use your old credit card after a balance transfer?

Yes, you can continue to use your credit card after a balance transfer. However, you should be aware that the introductory 0% APR may only apply to the balance transferred amount and not the entire balance on your new credit card.

3. What happens at the end of a balance transfer?

After you've transferred your balance to a new credit card, you must begin making payments on your new card. You should try to pay off your balance before the 0% APR introductory period ends. After the period ends you will be charged a significantly higher interest rate on the balance.

4. Do balance transfers hurt your credit score?

No, performing a balance transfer does not hurt your credit score. However, applying for a new balance transfer card can shave off a few points from your credit score since a hard inquiry will be added to your credit report when you apply for a balance transfer card.

5. How does a balance transfer work?

With a balance transfer, your card issuer will pay off the balance on a different credit card that you have. After the balance has been paid off, your card issuer will transfer the balance to your new credit card plus the balance transfer fee.


Does Carrying a Balance On Your Credit Card Help Your Credit Score?

If you're like most Americans, you likely have a credit card and you may be wondering whether carrying a balance on your credit card helps your credit score? We will answer this question in much detail below.

Does Carrying a Balance On Your Credit Card Help Your Credit Score?

Carrying a balance on your credit card does not help your credit score. In fact, carrying a balance on your credit card can actually hurt your credit score because it increases your credit utilization. Credit utilization refers to how much of your available credit you utilize. The more of your available credit you use, the lower your credit score will be. So, if you've been told that carrying a balance helps your credit, now you know that doing so does not, and can actually lower your credit score.

Keeping the balance on your credit card as low as possible is one of the best things that you can do to help your credit after making all of your payments on time. This is so because your credit utilization accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. So, if you're considering leaving a balance on your credit card in hopes of raising your credit score, now you know that paying down your balances is one of the best things that you can to improve your credit score.

As a rule of thumb, you should strive to keep your credit utilization below 10% and never exceed 30% credit utilization. If you exceed 30% credit utilization, you will significantly lower your credit score. So, always pay off as much debt as you can afford to pay off. For example, if you have a total credit limit of $10,000, you should not allow your credit card balance to exceed $3,000.

Additionally, to help your credit score, you should make all of your payments on time. Your payments account for 35% of your credit score, so making them on time is the best thing you can do to boost your credit score. Missing even a single payment on your credit cards or loans can cause significant damage to your credit score. So, make sure to make all of your payments on time.

Some people believe that to keep their account active, they must keep a balance on their credit card. This is not the case. Using your credit card for small monthly payments is sufficient to keep your account from being closed for being dormant (unused).

So, if you were wondering whether carrying a balance on your credit card helps your credit score, now you know that it does not. You will just be paying interest for no reason. Therefore, if you have a credit card with a balance, pay it off if you can afford to do so because doing that will save you money on interest.

Why Should You Avoid Carrying a Balance On Your Credit Card?

1. Avoid Paying Interest On Your Credit Card Balance

You should pay down the balance on your credit card to avoid paying interest on your credit card balance. Credit cards often charge consumers high-interest rates on the balances they carry on their credit cards. Interest can be avoided by paying off the credit card in full at the end of your billing cycle. So, if you want to save money on interest, pay off your credit card at the end of each billing cycle.

2. Reduce Your Credit Utilization

You should avoid carrying a balance on your credit card to reduce your credit utilization (how much of your available credit you're using). Reducing your credit utilization is good for your credit score because it accounts for 30% of your credit score. The lower your credit utilization, the better your credit score will be. As a rule of thumb, you should keep your balances below 10% of your available credit and never use 30% or more of your available credit. If you utilize more than 30% of your available credit, you will significantly lower your credit score.

3. Prevent Yourself From Accumulating Too Much Debt

Paying off your credit card instead of carrying a balance allows you to stop yourself from accumulating too much debt. Spending and accumulating debt can happy quickly and while you least expect it. So, paying off your credit cards and avoid leaving a high balance on your credit card accounts.

What is a Good Balance to Carry On Your Credit Card?

Carrying no balance on your credit card is the best thing that you can do for your credit because the lower your credit utilization, the better your credit score will be. However, we know that life happens sometimes and it's not possible to pay off your credit card. As a rule of thumb, you should utilize no more than 10% of your available credit and never exceed 30% credit utilization. If you use more than 30% of your available credit, your credit score will drop.

For example, if you have credit cards with a limit of $10,000, you should keep the balances on your credit cards below $3,000 for the best impact on your credit score.

If you find yourself utilizing too much of your available credit, you should contact your card issuer and request a credit limit increase. If your request is approved, your credit limit will be increased, lowering your credit utilization. That said, before you request a credit limit increase, you should be aware that your card issuer may add a hard inquiry to your credit report when it reviews your credit report to make a decision on your request for a credit limit increase. Nevertheless, a single hard inquiry will only lower your credit score by a few points. Just don't ask for too many credit limit increases within a short period of time, and you should be good.

Bottom Line

The bottom line is that carrying a balance on your credit card is not good for your credit nor is it good for your credit score. One of the best things that you can do for your credit score is to pay off all the balances on your credit cards. This is so because the lower the dollar amount of your available credit you use, the better your credit score will be. So, the next time your close friend or relative tell you that carrying a balance improves your credit score, now you know that it does not improve it and could actually lower your score.


Can I Get a Credit Card Without a Job?

If you want a credit card and you don't have a job, you might be wondering you can get a credit card without a job. This post will provide you with everything you need to know about getting a credit card without having a job.

Can You Get a Credit Card Without a Job?

You can get a credit card without a job, but you must have a source of income to be approved for a credit card. This is so because the Credit Card Act requires lenders to consider your ability to pay back the money you're going to borrow on your credit card. Without any income, you will not be able to make your credit card payments on time.

So, if you're unemployed and you do not have a job, you may still qualify for a credit card, but you must have some income in order to be able to make the minimum payments on your credit card. In addition to having an income, when considering your credit card application, the credit card issuer will consider your credit score and existing debt.

That said, when it comes to calculating your income for getting a credit card without a job, you can include any household income that you can access. This includes your own income, self-employment income, your spouse's income, investment income, alimony income, unemployment income, retirement income, and many other types of income.

So, if you have any of these types of income, you should include them on your credit card application because your card issuer will consider them when determining whether to grant you a credit card.

When it comes to determining your credit limit, the card issuer will look at your income, any debts that you have, and your other payment obligations, such as your rent or mortgage. If you have too much debt, your card issuer may approve you for only a low credit limit. So, make sure to include all of your income to obtain the highest credit limit.

If you do not have sufficient income and your application for a credit card is denied, here are some other options that you should consider.

What Should You Do If You Can't Get a Credit Card Without a Job?

If you do not have a job, here are some alternatives that you should consider. These alternatives are easier to obtain than applying on your own for a regular unsecured credit card.

1. Secured Credit Card

If you applied for a regular credit card and did not get approved, you should consider applying for a secured credit card. Secured credit cards are significantly easier to be approved for than regular credits because you are required to make a security deposit to obtain the card. Typically, the security deposit you place with the card issuer determines your credit limit. For example, if you make a $500 security deposit, you will be issued a secured credit card with a $500 credit limit. Typically, you can make a security deposit as large as $5,000.

That said, secured credit cards work the same was do regular credit cards, and they can be a great tool for building your credit. Your secured credit card account status is reported to the credit bureaus the same way a regular credit card account is reported to the credit bureaus. So, making your payments on time can significantly improve your credit. However, don't miss any payments because missing even a single payment can cause significant damage to your credit.

2. Get a Credit Card With a Co-signer

Very few banks allow the practice, but some card issuers still offer consumers the ability to get a credit card with a cosigner. Ask a close friend or relative if they are willing to co-sign for a credit card with you. When you get someone to co-sign a credit card with you, the card issuer will consider both your income and the co-signers income, making it easier for someone who does not have a job to qualify for a regular unsecured credit card.

That said, you should be aware that if you miss payments on the credit card or you default, you will cause significant damage to not only your credit but also the co-signers credit. So, make sure the cosigner understands this before asking them to co-sign with you. This is so because both the primary account holder and the cosigner are responsible for the repayment of the debt.

After a quick internet search, Bank of America and U.S Bank still allow consumers to obtain a credit card with a cosigner.

3. Authorized User On Credit Card

If you weren't able to get a credit card because you do not have a job, you should consider becoming an authorized user on a relative's or close friend's credit card. By becoming an authorized user, you will be issued a credit card with your name on it and you can use the card just as you would a regular credit card. The only difference is that, as an authorized user, you are not liable for the debt incurred on the card. Instead, the primary account holder is liable for making payments on the card. Since the account status is going to be reported on your credit report, you should only ask someone to add you as an authorized user if you believe that he or she will make on-time payments on the card. If the primary account holder misses payments or defaults, negative items will appear on your credit report, as well.

Should You Get a Credit Card Without a Job?

Although you may be able to get a credit card without having a job, the question that presents itself is: should you? If you're unemployed but you have a source of income, it may be a good idea to get a credit card so that you can build your credit. However, if you're unemployed and have little income, it may not make sense to obtain a credit card because it is easy to fall into debt by overspending on your card without having sufficient money to pay off the balance.

Additionally, credit cards can be very expensive, so if you plan on leaving a balance on your credit card, you should take into consideration the interest you'll be paying on the money you've borrowed. Nevertheless, a credit card that is used properly can be a great tool for building your credit. Just make sure to make all of your payments on time because missing even a single payment can cause a significant drop in your credit score.

Even if you don't have a job, so long as you have some income, you may be approved for a credit card, if you're not approved, consider applying for a secured credit card, getting a cosigner, or adding yourself as an authorized user on someone else's credit card.

Does Getting a Credit Card While Being Unemployed Affect Your Credit Score?

Regardless of whether you're employed or unemployed, applying for a credit card always results in a hard inquiry being added to your credit report when the card issuer reviews your credit report. Although a single hard inquiry will only lower your credit score by a few points, applying for too many credit cards within a short period of time results in several inquiries being added to your credit report, significantly lowering your credit score.

Opening a new credit card account can increase your credit score because the added credit limit you obtain when opening a new card can decrease your credit utilization (how much of your available credit you're using). Additionally, opening a new card could increase your credit score because it increases the diversity of your accounts, commonly know as credit mix. The more types of accounts you have on your credit report, the better your credit score will be.

When you open a new credit card, for the best impact on your credit score, make sure to make all of your card payments on time. Missing even a single payment can cause significant damage to your credit. So, make all of your payments on time for your credit card to improve your credit score.

Does Being Unemployed Affect Your Credit Score?

No, being unemployed does not affect your credit score. In fact, your employment status does not appear on your credit report. Therefore, it has no impact on your credit. That said, not having a job can be considered by lenders and creditors when you apply for items, such as credit cards, personal loans, or auto financing. Lenders want to see that you have income in order to be able to pay off your debts.

Frequently Asked Questions (FAQS)

1. Do you need a job to get a credit card?

Although you do not need a job to get a credit card, you must have some income to be approved for one. This is so because federal law mandates that credit card issuers assess your ability to repay the money you're seeking to borrow before approving you. If you have no income, you have no way of repaying the money you want to borrow, and will therefore likely be denied.

2. Do credit cards require proof of income?

Although credit cards require that you have income, some card issuer will ask you for proof of income, while others will not. So, it all depends on your card issuer. Some card issuers just ask for your employment and salary without asking for proof, while others will require proof such as bank statements or pay stubs.

3. What is the minimum amount of income to get a credit card?

There is no set number for the amount of income that you must have to get a credit card. List the income that you're making and see if you're approved.

4. Can a student get a credit card without income?

If you're a student and you do not have any income, it will be difficult to obtain a credit card. You should ask a close friend or relative to cosign with you to obtain a credit card.


Should You Cancel Unused Credit Cards?

If you have too many credit cards, you might be wondering whether you should cancel your unused credit cards? This post provides you with everything you need to know about canceling unused credit cards.

Should You Cancel Unused Credit Cards?

You should not cancel unused credit cards because canceling them could cause your credit score to drop. Canceling your credit card could cause a credit score drop because it may increase your credit utilization, reduce your credit mix, and reduce your average account age. We will now explain the reasons why you should not cancel credit cards even if you do not use them in more detail below.

Canceling an unused credit card could increase your credit utilization because when you close a credit card account, you're losing the credit limit associated with your account. If you carry balances on your credit cards, you will increase your credit utilization. An increase in credit utilization can potentially lower your credit score.

Your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. The lower your credit utilization, the better the impact of this factor will be on your credit score.

For example, if you have 2 credit cards, one credit card with a $10,000 credit limits and a second credit card with a $5,000 credit limit. If you have a balance of $3,000 on your first credit card and a $0 balance on your second credit, you're utilizing 20% of your total available credit. However, if you close your second credit card with a $5,000 limit, you will now be utilizing 30% of your total available credit, which can significantly lower your credit score.

As a rule of thumb, you should strive to keep your credit utilization as low as possible for the best impact on your credit score. Experts agree that you should keep your credit utilization below 10% and never exceed 30% credit utilization. Using more than 30% of your available credit will cause a significant drop in your credit score.

The second reason you should not cancel or close an unused credit card is that it has the potential to reduce your credit mix, also known as the diversity of your accounts. If this is your only credit card, closing it could reduce your credit mix. Your credit mix accounts for 10% of your credit score, so closing a credit card account can potentially reduce your mix of credit, lowering your credit score. So, for the best impact on your credit score, you should avoid closing unused credit cards.

The third reason you should avoid closing an unused credit card is that it can reduce the average age of your accounts. The average age of all of your accounts makes up 15% of your credit score. So, the older your accounts, the better of an impact this factor will have on your credit score. Closing down a credit card reduces the average age of your accounts. So, for the best impact on your credit score, you should keep old accounts open for longer, especially if they have a positive payment history associated with them.

Conclusion - Keeping your old credit card accounts open by charging small amounts on them and making payments in full can do wonders for your credit score because it allows you to keep your credit utilization low, it diversifies the types of accounts that you have, and it contributes to an older account age. These are all great things for your credit score.

CSP Pro Tip - If you have a credit card that you rarely use, you should use it for small purchases and make payments on it to avoid having the account shut down for being dormant.

How Does Cancelling An Unused Credit Card Affect Your Credit Score?

Cancelling an unused credit card or credit card that you rarely use can negatively affect your credit score for a number of reasons.

First, canceling an unused credit card can result in a higher credit utilization (how much of your total available credit you're using). Higher credit utilization can lower your credit score, especially if closing your credit card results in a credit utilization of 30% or more. As a rule of thumb, you should keep your credit utilization below 10% and never exceed 30%. Exceeding 30% credit utilization can significantly lower your credit score. So, consider whether closing your credit card would increase your credit utilization prior to closing your account.

Second, closing an unused credit card can slightly lower your credit score because it may reduce the diversity of your account. Your credit diversity, also known as credit mix, accounts for 10% of your credit score. Whenever you close an account, you can potentially reduce the diversity of your accounts, lowering your credit score. So, if this is your only credit card, you should avoid closing it for your credit mix factor to have the best impact on your credit score.

Third, canceling an unused credit card will reduce the overall age of your accounts. Your account age makes up 15% of your credit score. The older your accounts, the better this factor will impact your credit score. So, to increase your account, you should keep old accounts that are in good standing open for longer, meaning you shouldn't close your credit card account for this impact on your credit score.

What Should You Do With Your Unused Credit Card Instead of Cancelling It?

If you have an unused credit card and you're debating whether to keep your credit card open or close it, we will share some things that you can do with your unused credit card instead of cancelling it.

The best way to make use of a rarely used credit card is to use it as a card for making some of your monthly recurring payments. For example, you can use it to make automatic monthly payments for your cell phone bill, Netflix subscription, cable subscription, and other recurring monthly bills. This keeps your account active and avoids having the account being canceled by your card issuer for being dormant (unused).

That said, make sure to set up payment reminders to make your credit card payments on time. Missing even a single payment on your credit card account can cause significant damage to your credit score. Continuing to use your credit card responsibly and making on-time payments will further boost your credit score.

When Does It Make Sense To Cancel An Unused Credit Card?

It makes sense to cancel an unused credit card if you're paying a high annual fee on your credit card and you're not taking full advantage of the perks and rewards offered by your credit card. That said, you should keep the negative consequences to your credit score in mind before closing an unused credit card.

For example, if you know that you're going to be making a large purchase, such as buying a home or financing a vehicle in the near future, you should hold off on canceling your unused credit card as it will likely cause a drop in your credit score. After making your purchase, then close the credit card if you see that's the correct course of action.

How to Properly Cancel and Close Unused Credit Card Accounts?

If you've determined that closing your credit card is something that you want to do, here is how you can properly close your credit card account so you don't run into any trouble.

  1. Cancel all of the automatic payments being charged onto your account
  2. Pay off the balance on your credit card, leaving a $0 balance on the card
  3. Contact your credit card issuer and confirm that the balance on your credit card is at $0
  4. Ask them to cancel the credit card
  5. Ask your card issuer to follow up with a letter or email confirming that the account has been closed with a $0 balance

CSP Pro Tip - If you want to cancel multiple credit cards, it's best if you do not cancel all of them within a short period of time, space out the closure over a course of several months. This will help you avoid a large increase in your credit utilization. You should keep credit cards with high limits open so that you can benefit from a low credit utilization rate.

Closing An Unused Credit Card Without Hurting Your Credit Score

There is a way to cancel an unused credit card without hurting your credit score, but for this method to work, you must have two credit cards with the same card issuer. For example, if you have two Bank of America Credit Cards, and for some reason, you want to close one of your accounts, you can ask your financial institution to transfer over the credit line from one of your cards to the other card.

This prevents the closure of your account from increasing your credit utilization since you're shifting the credit limit that would have been lost to another credit card.

For example, if you have two credit cards with Bank of America, one with a $5,000 credit limit and a second card with a $4,000 credit limit. You can ask them to transfer over your $4,000 credit limit to your credit card with a $5,000 credit limit, giving you a total of $9,000 credit limit on a single credit card after canceling the second card. This way there will be no increase in your credit utilization.

The Bottom Line

For the best impact on your credit score, you should keep old credit cards open. You should avoid closing them to keep your credit score as high as possible. This is especially true if you plan on making major purchases in the near future, such as financing a vehicle or even taking out a loan to buy a home. So, consider the consequences of closing an unused credit card vs the benefits, and then make your decision. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Why should you avoid canceling unused credit cards?

You should avoid cancelling unused credit cards because it can potentially increase your credit utilization, reduce your credit mix, and reduce the overall age of your accounts, which can all lower your credit score. For the best impact to your credit score, you should keep old account even if they're not used very often open.

2. Do unused credit cards affect your credit score?

Yes, unused accounts in good standing can positively affect your credit score. So, even if you rarely use them, you should keep them open for the best impact to your credit score.

3. Is it bad to have a credit card that you rarely use?

There is nothing wrong with having a credit card that you rarely use. However, you should keep in mind that if you do not use your credit card for a long period of time, your card issuer may consider the account as dormant, and may therefore either lower your credit limit or close your credit card.

4. What is the major disadvantage of closing an unused credit card?

The major disadvantage of closing a credit card is that it can potentially increase the amount of total available credit that you're using, lowering your credit score.


What Happens If I Apply For a Credit Card and Get Denied?

If you applied for a credit card and your application was denied, you might be wondering, what happens after you denied for a credit card? We will provide you with everything you need to know about what happens after you apply for a credit card and get denied.

What Happens If I Apply For a Credit Card and Get Denied?

If you apply for a credit card and you get denied, nothing negative will be added to your credit report. However, a hard inquiry will be placed on your credit report regardless of whether you're approved or denied a credit card. A single hard inquiry will only lower your credit score by a few points. Hard inquiries remain on your credit report for 2 years from the date that you applied for a credit card. If you're denied, the credit card issuer is legally obligated to send you a letter known as an adverse action letter, explaining to you why you were denied the credit card you applied for.

Here are some common reasons why you may have been denied the credit card you applied for:

1. Negative Information - There may negative information on your credit report, such as missed payments, repossessions, or bankruptcy making it difficult for the lender to approve you for a credit card.

2. Limited Credit History - You may have been denied a credit card because you have little credit history. Typically, lenders like to see that you have aged open accounts that are in good standing to approve you for a credit card. So, if you're applying for a credit for the first time, it's likely that you have what is known as a thin credit file, making it difficult for the lender to approve you. This is so because lenders want to make sure that you're likely to repay your debts on time, and with no history, they have no assurance that you'll make your payments on time.

3. High Credit Utilization - If you have open credit cards with high balances, this means that you're likely using too much of your available credit. Card issuers and banks do not want to lend money to people who have too much debt. Too much debt means there is a large likelihood that you'll default on your monetary obligations, and so it's a common reason for being denied a credit card. Typically, you should only utilize 10% of your available credit and never exceed 30% utilization. If you use more than 30% of your available credit, not only are your chances of being denied for a credit card high, but the high utilization could also lower your credit score.

4. Too Many Credit Card and Loan Applications - If you've submitted too many credit card and loan applications within a short period of time, this may be grounds for denial of a credit card. This is so because every time you submit a credit card or loan application, a hard inquiry is added to your credit report, alerting future lenders and creditors that you've recently been seeking credit. Lenders and credit card issuers do not like to see too many credit applications within a short period of time because it indicates that you're actively seeking credit, which may signify financial difficulty. Lenders only want to lend money to people who can pay back the money they borrow.

5. Late Payments - If you have late payments on your credit report, this may be the reason you were denied a credit card. This is so because lenders want to lend money and issue credit cards to persons who will pay on time. If you have late payments on your credit report, this shows lenders that you have failed to honor your obligation to make your payments on time, making it less likely for them to lend you money. The more recent the late payment, the more likely it is that you will be denied a credit card.

What Should You Do If You Applied for a Credit Card and Got Denied?

If you applied for a credit card and were denied, it's very difficult to be approved for the credit card you applied for. You can try to contact the card issuer and ask them to consider other sources of income that you did not include in your credit card application, such as alimony, child support, and other sources of income. But, doing so is unlikely to change the decision of the card issuer.

Additionally, if you have other credit cards with the card issuer you applied with, you can ask the card issuer to shift some of your other credit lines to the new credit card you applied for. Some card issuers will be willing to do this because they're not taking on additional risk by simply moving some of your existing credit lines to a new credit card. That said, your credit line on a different credit card will be cut short as it's used on another credit card.

That said, if you ask the card issuer to reconsider your credit card application and the reconsideration is unsuccessful, you shouldn't rush to apply for another credit. Submitting too many credit applications within a short period of time will make it very difficult to be approved for a credit card. Instead, you should focus on improving your credit score by paying down your account balances, making your payments on time, and keeping old accounts open and in good standing.

After you've improved your credit for three to six months, you should only then submit a credit card application for a credit card that you're reasonably likely to be approved for. Check the requirements for the credit card you want to apply for before applying. If your credit score falls within the card issuer's requirements, submit an application, but if the card requires a higher credit score than yours, you should refrain from applying. This saves you from an unnecessary hard inquiry from being added to your credit report.

Does Applying for a Credit Card and Getting Denied Hurt Your Credit Score?

Merely getting denied for a credit card will not hurt your credit score as no negative information is added to your credit report for being denied. However, whenever you apply for a credit card, a hard inquiry is added to your credit report regardless of whether you're approved or denied for the credit card. That said, a hard inquiry will only lower your credit score by only a few points (3 to 5 points). The impact a hard inquiry has on your credit score will lessen as the hard inquiry ages. Experts agree that a hard inquiry only impacts your credit score for 12 months, and after 2 years, hard inquiries are removed from your credit report automatically. If a hard inquiry remains on your credit report for more than 2 years, you can file a dispute with the credit reporting bureau showing the hard inquiry to have it permanently removed from your report.

How To Improve Your Credit Score Before Applying For Another Credit Card?

There are a number of things that you can do to improve your credit score before applying for another credit card, here are some of those things:

1. Payments - Make your credit card and loan payments on time. Your payment history has the biggest impact on your credit score because it accounts for 35% of your credit score. So, making your payments on time will help you maintain and improve your credit score. Missing even a single payment can cause a significant drop in your credit score. You can ensure that your monthly payments are made on time by setting payment reminders and automatic payments.

2. Account Balances - Reducing the balances (amount owed) on your credit cards, student loans, personal loans, and other types of debt will improve your credit score. This is so because your credit utilization accounts for 30% of your credit score, so paying down your balances will boost your credit score.

3. Credit Applications - If you want to improve your credit score to qualify for a credit card in the future, you should refrain from submitting too many credit applications within a short period of time. Hard inquiries account for 10% of your credit score, so reducing credit applications will improve your credit score. Also, lenders do not like to see that you've been applying for too many credit cards or loans as it indicates that you're actively seeking credit. So, keep credit card and loan applications to a minimum. As a rule of thumb, you should have no more than 2 to 3 hard inquiries on your credit report for the best chances of being approved.

4. Old Accounts - You should keep old accounts that are in good standing open because they have a positive impact on your credit score. Even if you rarely use your old account, keep it open for the best impact to your credit score.

5. Credit Report - You should frequently review your credit report. Periodically reviewing your credit report can uncover hidden negative items on your credit report. It is not uncommon to find negative information impacting your credit, such as a collection account that you had no idea about. So, check your credit report and address any negative items on your credit report.

Bottom Line - What Happens If You Get Denied For a Credit Card?

If you get denied a credit card or your credit card application is not approved, no negative information will be reported on your credit report. However, a hard inquiry is placed on your credit report regardless of whether you're approved or denied for the credit card. That said, you should space out credit card applications for the best chances of being approved.