Why are Credit Cards Dangerous for your Credit Score

Your credit score is calculated through secret formulas used by the credit reporting bureaus. Although the exact formulas used by the credit reporting bureaus are unknown, the factors that are used to calculate your credit score are generally known. For example, your credit to debt ratio, the timeliness of your credit payments, and the number of inquiries in your credit report, are just a few of the factors that credit reporting bureaus use to calculate your credit score. Because most people use credit cards, a person’s credit score (and the factors listed above in calculating that credit score) is usually based heavily on credit card use. As such, should you use your credit cards irresponsibly, you will quickly discover that your credit cards are the most dangerous part of your credit score.

Although credit cards make up a large portion of most people’s credit score, this does not mean that other loans are not present. For example, many people have mortgages, and car loans. Despite this fact, it is credit cards that are generally the reason that most people’s credit score suffers. This is probably true because credit cards are unsecured debt. If you do not pay your mortgage, the bank can foreclose and take your home. If you fail to pay your car loan, the lender can repossess it. However, if you do not pay your credit card bills, you can keep your home and you can keep your car. Usually, the worst thing that happens is that your credit score is decreased. Some people do not care about this because they feel that credit scores are nothing more than capitalist creations used to control and take advantage of the spending of the masses. However, a credit score is so much more than that.

Because of the mentality that failure to pay credit cards has minimal consequences, many people experiencing cash flow problems stop paying on credit cards. As such, as stated above, a person’s credit score suffers. It is exactly this mentality that makes credit cards so dangerous to your credit score.

It is this mentality that also leads people to pursue instant gratification in the form of “maxing” out a credit card. The belief is, buying everything you want now is okay because you will be able to afford the low monthly payments later. However, this also causes problems. Even if you continue to make consistent, timely, minimum monthly payments, because you have maxed out your credit card(s), your credit to debt ratio will be bad and thus, your credit score will be negatively affected.

The point is, having the wrong mentality about credit cards and the adverse affects of your credit score from non-payments, late payments, and/or maxing out your credit cards are the reasons why credit cards are such a dangerous part of your credit score. If you keep the right mentality (that credit card use is a privilege and needs to be done responsibly) your credit cards can be a very healthy addition to your credit score.