How do credit cards affect your credit score?

A few different factors play a role in your credit score, no matter which type of credit card you choose.

• Payment history: paying at least the minimum by the due date, every time, has the biggest impact on your score
• Credit utilization: how much of your available credit you're using, on each card and across all your cards, plays a large role too
• Length of credit history: older accounts in good standing generally support your score, since they show a longer track record of responsible credit use
• Credit mix: having different types of credit, like a card and a loan, can help your score, though it carries less weight than payment history or utilization
• New credit applications: applying for several cards or loans in a short period can cause a temporary dip, as it can be associated with credit seeking behaviour and a higher risk of defaulting on payments

When used responsibly, a credit card can help you build a strong credit history. Paying on time, every time, creates a positive payment history, and is one of the most important factors in building a healthy credit score.

Keeping your balance low relative to your limit keeps your credit utilization low, which can also help build credit over time. Simply leaving the account open can help too, since a longer average age of your credit use can positively impact your credit history.

Not directly. Credit scoring models consider how a card is used, not what it costs to carry. A no-fee card and a fee-based card affect your score the same way when they're used the same way: paid on time, kept under the limit, and held over time.

The credit limit tends to matter more than the fee itself. A higher limit can lower your utilization ratio if your spending stays the same, but carrying a balance close to the limit on any card, fee or no fee, can weigh on your score.

A few consistent habits go a long way, on credit cards and other accounts alike.

• Sign up for alerts: since payment history carries the most weight, stay informed by signing up for payment alerts and managing your spending
• Keep balances low: staying under your available limit, across all your accounts, supports a healthier utilization ratio
• Space out new applications: applying for several accounts in a short period can cause a temporary dip in your score if a credit check is required
• Review your credit report: catch errors early before they affect your credit score
• Keep long-standing accounts open when it makes sense: account age adds up over time, so older accounts in good standing can work in your favour

Whether closing a card helps or hurts depends on your situation. If it's one of only a few accounts you have, closing it may raise the amount of available credit you're using and lower the average age of your accounts once it drops off your credit report. If you're carrying several cards you no longer use, closing one can simplify what you're managing.

Before you decide, it's worth understanding why you've stopped using the card. Is it not earning the kind of rewards you want? Is the annual fee more than you're getting back? Have your shopping habits changed? The answer may point you in the right direction.

Ready for a card that fits how you spend? Explore CIBC credit cards.