How does personal responsibility affect your credit?

Understanding the ins and outs of credit can be challenging. What’s a credit score? How do credit reports work? What, exactly, is credit utilization? And what do you have control over? It can be a lot to digest. 

Here are a few things to know about which factors are within your control—and how personal responsibility might affect your credit.

As the Consumer Financial Protection Bureau (CFPB) says, credit scores are predictors of how likely you are to pay back your debts on time.

That means that your credit scores might help companies determine whether you’re a good candidate for things like mortgages, car loans, credit card applications, rental applications and even jobs. 

Luckily, there are some things you can do to help improve your credit scores, create healthy financial habits and use credit responsibly. Here are a few tips: 

You should make your payments on time, every time, according to the CFPB. 

That’s because your payment history can impact your credit scores. And missed or late credit card payments can not only affect your credit—depending on the card, they can lead to late fees and interest rate increases, too.

You could consider setting up automatic payments or electronic reminders to help you make sure you always pay on time.

Another important personal habit that can impact credit health: Only use the credit you need. Better yet, stay well below your credit limit.

Why? Your credit scores could be affected by your credit utilization ratio—or how much of your total available revolving credit you’re using. The lower your credit utilization ratio, the better your credit scores might be. In fact, the CFPB recommends using no more than 30% of your total credit limit.

Creating a budget is a key step to reaching your financial goals, the CFPB says. 

How does your credit card come into play? Credit cards aren’t just for spending—you can also use your credit card for budgeting. That’s because your credit card comes with a very useful tool for managing your money: your monthly credit card statement.

You can start by grabbing your latest credit card statement or checking it online. Read through your purchases or transactions and group your expenses into categories. Then, sort those categories into essential and nonessential spending.

Once you can clearly see where your money is going, you can create a realistic monthly budget. And you might even find ways to cut back on nonessential spending and start to save or pay down debt instead.  

It may be tempting to close a credit card you don’t use. But keep in mind, it may impact your credit. 

Your credit utilization rate may increase if you close a credit card because you’d have less total available credit. And that can affect your credit scores too.  

Once the account closes, the average age of your credit accounts could also change, depending on how long you’ve had the account. Because your credit scores are based partly on the length of your credit history, a shorter history can impact your credit scores.

But like any financial decision, you have to consider your unique circumstances. It’s a good idea to weigh the pros and cons of your particular situation before deciding whether to keep your credit card account open.

The CFPB says that if possible, you should pay your credit card bill in full each billing cycle. And if you can’t pay the full balance, it’s a good idea to pay off as much as you can. 

Making at least your credit card minimum payments on time every billing cycle helps you avoid penalties and fees. And it keeps your account in good standing. 

But if you only pay the minimum and not the full balance, you’ll carry a balance. And you might be charged interest on that balance. Those interest charges can add up and make it harder to pay off your credit card debt. 

No matter where you are in your credit journey, it’s a good idea to keep track of where your credit stands. One way to monitor your credit is with CreditWise from Capital One. 

CreditWise gives you free access to your TransUnion® credit report and weekly VantageScore® 3.0 credit score—without hurting your score. That’s because it uses soft inquiries to monitor things. And CreditWise is free and available to everyone—even if you don’t have a Capital One account. 

You can also get free copies of your credit reports from the three major credit bureaus. Call 877-322-8228 or visit AnnualCreditReport.com to learn more.