Use Your Credit Cards Can Improve Your Credit Score

I purchased a credit score the other day, using myFICO’s 26% off coupon code. The reason was that it has been almost a year since I last checked my FICO score in last January. A lot of things has happened since then, with the biggest event being that we are no longer homeowners, and the mortgage loan is also gone. Now that things seem all settled down, I am curious to see what kind of impact that had on my credit score. Also as I mentioned before, my credit was checked multiple times in August when we were looking for a place to rent. Though I have been getting from credit scores from free services such as CreditKarma and Quizzle, I have doubt about the accuracy and usefulness of those free services.

FICO Score

While I am very disappointed to see that my FICO score actually dropped 17 points from 792 to 775 (there’s nothing to be worried or alarmed about though), I did find something interesting in the Equifax credit report that I received along with the credit score. Under the “What’s helping your FICO score”, there’s one item, You’ve shown recent use of credit cards (as you can see in the picture above) that’s new to me. The explanation for how this helps my score reads like this:

Your FICO score evaluates your mix of credit cards, installment loans and mortgages. People who demonstrate responsible use of different types of credit are generally less risky to lenders. You helped your FICO score by showing recent use of a credit card.

What is interesting is this statement “You helped your FICO score by showing recent use of a credit card.” I have never seen this before. In the report I got early this year, the four positive factors that helped my credit score were:

  • No missed payment
  • Limited use of credit
  • An established credit history
  • An established revolving credit history

with only the last item appearing to be different from those listed in the latest report. I also went through a few reports I got before and found that “recent use of credit cards” had never been a factor.

We all know that since the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 became law in May, credit card companies have been very aggressive in dealing with existing cardholders whom they considered as high-risk by rising interest rates, cutting credit limits, or even close the accounts all together. Though so far none of my credit card’s credit line has been reduced, I did have a few cards being closed due to inactivity for a long period of time. From my understanding, the only relationship between inactive cards, especially old cards, being closed and credit score is that it could reduce the average length of the account owner’s credit history, which in turn could lower the credit score. However, putting the card in dormant mode doesn’t hurt score. That’s the conclusion I got from examining all the credit reports I have so far.

If as the new credit report indicated that recent use of credit card is positive for my credit score, could the opposite,  that having credit cards but not use them will hurt my credit score, also be true? Maybe not, because I also own many credit cards that I barely use.

Did you get your credit score & credit report recently? If so, did you see such an item on your report?

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