Does Buying Something on Revolving Credit Hurt My Credit Score?

Using credit properly can actually improve your credit score.

Using credit properly can actually improve your credit score.

Buying something on revolving credit can hurt or help your credit score, depending on how you do it. Using your credit line is a good thing. Paying it off is better. If you pay your balance in full every month you build up a good credit record and score. However, if don't pay your balance in full every month -- or, worse, are late in paying your card -- your credit score will suffer.

To Use Credit or Not to Use Credit

In the past, some financial experts suggested not using credit cards. They recommended having revolving credit but not using it, unless it was necessary. Having the credit line was enough to establish a good credit score. Of course, for many purchases, credit is necessary. That is the benefit of revolving credit - being able to pay for a large purchase over time. Now experts agree that proper credit usage benefits your credit score.

What Goes into Credit Scores

Five primary components affect your credit score. The two most important pieces are the amount of debt you carry and your payment history. Having more debt than you can reasonably pay back is bad, while not making payments on time is worse. The other three factors include how long ago you established credit, what type of revolving credit you have, and how much new credit have you established recently.

Credit Utilization Ratio

Your credit utilization ratio measures the amount of debt you have as a percentage of your available credit. For example, if you have $10,000 of available credit and a balance of $2,000, your utilization ratio is 20 percent. Credit experts recommend that the ratio of credit used to credit available be somewhere between 10 percent and 30 percent. That is true for an individual card as well as your collective credit limits and balances. Not using credit at all puts your ratio at 0 percent, outside of the recommendation.

Best Bet

If you want to have a positive impact on your credit score, the best way to use revolving credit is to use small amounts of credit regularly, while paying off the balances at the end of each month. This way you build up a record of responsible credit usage. So go ahead and make that purchase -- as long as you know you have the cash to pay it in full at the end of the month. Doing this will actually strengthen your credit score, and also let you avoid paying interest on your purchases.

About the Author

Brian Stankich began working in banking and insurance after obtaining a Bachelor of Science in economics from Purdue University. He later directed an international NGO in southern Europe and has certifications in skills and development training and coaching.

Photo Credits

  • Siri Stafford/Photodisc/Getty Images