Relationship Between Credit Card Activity and FICO Scores

Credit Card Activity

It is important to understand the relationship between credit card activity and FICO scores because there is more to keeping a good credit score than simply making your payments on time.

The FICO Credit Standard

To understand how credit card activity and FICO scores relate, it is important to understand how your credit score is determined. According to, your credit score is influenced by five major factors:

  • Payment history
  • Debt to credit utilization
  • Age of credit history
  • Types of credit
  • Inquiries

Types of Credit Card Activity

There are several things you can do when it comes to credit cards:

  • Apply for a credit card
  • Use your credit card
  • Pay your credit card bills
  • Apply for a credit line increase
  • Close credit cards

While you can do all of these things with your credit cards, most often, the term "activity" is used with credit cards to describe actually using the card to make purchases. Furthermore, while all of these different activities can have an impact on your FICO score, certain activities have more of an impact than others.

About Credit Card Activity and FICO Scores

Most people think that as long as they make payments on time there will be no problem with their credit scores. However, other types of credit card activities can hurt your score too, so you should be aware of how credit card activity and FICO scores interact.

Paying off your balance is vital so you can avoid paying interest, but it is also important to protect your FICO score. When your credit score is determined, your debt to credit ratio is one of the most important factors, next in importance to payment history. Your debt-to-credit ratio refers to the amount of your credit you have used, in relation to the amount of credit you have available to you. For example, if you have a $100 credit line and you charge $50, you have a 50 percent debt-to-credit ratio. If you spend $100 on that same card, you have a 100 percent debt-to-credit ratio.

You are penalized in your FICO score for charging too much, likely because creditors may believe your spending is out of control or you are living beyond your means if you maintain high balances from month to month. Keeping your balance at or near the limit on your cards also suggests to creditors that you owe large balances and that you may be unable to continue to sustain making payments on all that credit.

As such, in order to raise your credit score, pay off large balances and avoid maxing out your cards. While you could also apply for higher credit limits in order to improve your debt to credit ratio, this can actually result in temporarily lowering your score if your creditor pulls your credit report, as it will show up as an inquiry.

Other Harmful Activities

Opening new cards and closing old ones can also be dangerous credit card activities that have the potential to hurt your score. Opening new cards results in inquiries, and too many inquiries may suggest to creditors that you are about to start overusing credit and get yourself in financial trouble. Furthermore, opening new accounts and closing old ones lowers your average account age, which worries creditors since it then looks as if you have a shorter history of responsible credit use.

It is important to think about your FICO score before making financial decisions. This is especially true if you anticipate making a major purchase, such as a new home, since a lower FICO score can result in a higher interest rate and a larger expense over the life of the loan.

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Relationship Between Credit Card Activity and FICO Scores