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Swiping your favorite cash-back credit card, such as theBlue Cash Preferred® Card from American Express, can help you get valuable cash back while stocking up at U.S. supermarkets. Terms apply. With the right card, you can even earn rewards while staying home andstreaming Netflix.
But just be careful about charging all your purchases onto your credit card, which can cause unintended impact to your credit score and your wallet.
Below,CNBC Select speaks with Erica Sandberg, consumer finance expert and author of "Expecting Money: The Essential Financial Plan for New and Growing Families," about how using your credit card for everything can hurt your credit score — and what to consider if you plan to swipe on a daily basis.
How can paying for everything on your credit card harm you?
The biggest red flag to watch out for when using your credit card is how close you come to hitting your credit limit.
Americans have an average of $22,751 in credit available to them across all their credit cards, but that doesn't mean you should use all of it. In fact, experts recommend keeping your credit utilization rate (your debt-to-credit ratio) below 30% (with some even suggesting as low as under 10%). This means that if you have $10,000 in credit available across two or three credit cards, you should really never have a combined balance of more than $3,000.
If your balances are too close to the amount of credit you are borrowing, you may appear to lenders and credit card issuers that you are living beyond your means.
"It's a clear indication that you used credit to get by," Sandberg says. "Remember, credit scores are for lenders to understand what kind of risk you are."
What to consider if you use your credit card every day
Every credit card offers a grace period of at least 21 days, giving you time to pay back your balance without incurring interest, even if it is high.
However, your balances are reported to the credit bureausperiodically throughout the month, and when your total credit utilization rate tips over beyond 30%, you might see a ding in your score until it comes back down.
For this reason, some people make it a point to treat their credit cards almost like cash and pay off their balance nearly as soon as they purchase anything with their credit card. Doing this helps ensure you never pay interest on a credit card balance, plus it keeps your credit utilization rate low while showing you actively use the card.
And if you do use up too much of your credit limit, it could have a domino effect if you aren't able to afford to pay it all back on time. If by end of the month, you aren't able to pay off your high balance in full, your credit score will likely fall and you will also be hit with interest charges.
If you find yourself in this situation, you should at the very least make your minimum payments. You'll pay in interest, but it will help protect your score since on-time payments are the most important factor in most credit scoring models. If you can't afford to make your minimums, it's at this point that "your credit scores will start to plummet," Sandberg says.
Using your credit card to 'get by' in tough times
You may find that you are relying on credit more these days with the uncertainty surrounding the coronavirus pandemic. But you should try to make sure that you are charging carefully and judiciously.
"Eventually life will return to normal, and you don't want to have a slew of financial problems and credit damage to deal with," Sandberg says.
When you need to borrow more than normal during this time, talk to your credit card issuer about a credit line increase so that your limit is higher and your credit utilization remains low. But only do this if you are confident you won't overspend on the new limit. And for some issuers like Citi, you may be denied if you've already asked for an increase in the last six months.
Make sure you also ask about financial hardship assistance if you think you will miss a payment due date in the coming months. It helps to be proactive where you can, and know that many issuers are offering help for those financially burdened because of coronavirus.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
FAQs
With the right card, you can even earn rewards while staying home and streaming Netflix. But just be careful about charging all your purchases onto your credit card, which can cause unintended impact to your credit score and your wallet.
How can using a credit card hurt your credit score? ›
The amount of debt you owe on your credit card is one of the biggest factors affecting your credit score. Generally, it's not a good idea to max out your credit card. If you do use up your entire credit limit on your card, you'll discover that your credit score may go down.
Will 50% credit utilization hurt me? ›
Lower utilization rates are better for your credit scores, and 30% could be better than 50%, 70% or 90%. However, a lower utilization rate might be even better for your credit scores.
How does a charge card affect your credit score? ›
How does a charge card affect your credit score? Since charge cards don't have a credit limit, they don't factor into your credit utilization rate, which is the percentage of your total available credit that you're using. But charge cards do influence the most important factor of your credit score — payment history.
Is it OK to put everything on a credit card? ›
Overusing your card can spiral out of control quickly and put you into serious debt. Additionally, using more than 30% of your available credit can bring your credit score down. So try not to overdo it.
Is using 100% of credit card bad? ›
Using no more than 30% of your credit limits is a guideline — and using less is better for your score. Lauren Schwahn is a writer at NerdWallet who covers credit scoring, debt, budgeting and money-saving strategies.
Should I pay off my credit card in full or leave a small balance? ›
If you have a credit card balance, it's typically best to pay it off in full if you can. Carrying a balance can lead to expensive interest charges and growing debt. Plus, using more than 30% of your credit line is likely to have a negative effect on your credit scores.
Does zero balance hurt credit score? ›
If you have a zero balance because you simply never use it, your credit card may stop sending updates to the credit bureaus, and that inactive credit card could potentially lower your credit score over time.
Is it bad to have a lot of credit cards with zero balance? ›
However, multiple accounts may be difficult to track, resulting in missed payments that lower your credit score. You must decide what you can manage and what will make you appear most desirable. Having too many cards with a zero balance will not improve your credit score. In fact, it can actually hurt it.
Is a 900 credit score possible? ›
While achieving a CIBIL Score of 900 is technically possible, it is extremely rare. Scores above 760 are considered very good or exceptional, providing significant benefits such as lower interest rates and higher chances of loan approval.
Helps keep Credit UtiliSation Ratio Low: If you have one single card and use 90% of the credit limit, it will naturally bring down the credit utilization score. However, if you have more than one card and use just 50% of the credit limit, it will help maintain a good utilization ratio that is ideal.
Is 700 a good credit score? ›
For a score with a range between 300 and 850, a credit score of 700 or above is generally considered good. A score of 800 or above on the same range is considered to be excellent. Most consumers have credit scores that fall between 600 and 750. In 2023, the average FICO® Score☉ in the U.S. reached 715.
What is better a charge card or credit card? ›
Credit cards offer you the flexibility of a minimum payment, but the same feature may become a problem if you start to accumulate debt and interest charges. Charge cards generally must be paid off in full each month, but if you can't make a payment in full, the issuer may close your card and you'll have to pay a fee.
Is Amex Gold Card metal? ›
An elegant contactless metal Card designed for you, issued in US for International residents*. Relax and enjoy in the more than 1,300 Priority Pass™ lounges worldwide.
Are Amex Platinum cards worth it? ›
The Amex Platinum has an annual fee of $695, but for many travelers, the card's benefits will more than offset that charge. If you can maximize all of its annual statement credits, you're looking at nearly $1,600 in value.
Is it smart to use a credit card to pay for everything? ›
In general, NerdWallet recommends paying with a credit card whenever possible: Credit cards are safer to carry than cash and offer stronger fraud protections than debit. You can earn significant rewards without changing your spending habits. It's easier to track your spending.
What should you not spend on a credit card? ›
“The general rule is: Don't use your credit card for anything that you can't pay for in full when the bill is due,” Priya Malani, a founding partner of Stash Wealth, a millennial-focused financial-planning firm, tells Select.
Is it bad to pay your credit card every time you use it? ›
The bottom line
Carefully consider how you want to use your available credit based on your goals and your personal situation. Keep in mind, however, that the best way to maintain a high credit score and lower your financial risk is to pay your balances in full and on time, every time.
Is making multiple payments on credit cards bad? ›
“Making multiple payments is a smart way to reduce your interest costs,” said Jason Steele, credit card expert and CNET expert review board member. “If you make payments whenever you have the funds available, you'll reduce your account's average daily balance, which will minimize your interest charges.”
