Use it or Lose it: Understanding Credit Cards and Credit Scores
I’ve been asked by people before what is the right amount of credit cards a person should have. My answer typically shocks people: zero.
When used responsibly, credit cards can be a great way to earn rewards and build credit history. The issue is how easy it is to use them irresponsibly. Credit card issuers will typically give an outsized amount of a credit line to a person and incentivize them to spend on it, so it’s tempting for a person to put big expenses on their credit and think they’ll pay it off later.
However, a credit card is considered an unsecured line of credit, a fancy way of saying its debt that is not backed by any assets. A mortgage is backed by the value of the house, a business loan is backed by the assets that the business owns, but a credit card is not backed by anything. Therefore, card issuers charge insanely high interest rates, typically between 20 and 30% in 2026. Putting large purchases on credit without having the cash to pay down your credit card the next month in full is a recipe for falling into a debt trap.
However, at least in America, having credit is essential for most people in order to get access to mortgages, car loans and other types of financing. Having no credit will only make these endeavors more difficult, so it's a game we’re forced to play. So it's best to learn the rules so you play the game as best you can.
So what is one to do if they want to build credit? First, let’s review the major components of a credit score:
Length of credit history: this is the amount of time your oldest credit account has been open. This shows a potential lender how long you’ve had available credit. The longer you’ve had accounts open, the better.
Credit Utilization: This is the amount of debt outstanding relative to the amount of debt available to you. For example, if someone has a credit card with a $10,000 limit and has $5,000 outstanding on it, their credit utilization would be 50%. Typically staying under 30% is beneficial for your credit score.
Payment history: this shows how timely you are with payments on your debt. Making timely, regular monthly payments on your credit lines will help your credit score.
Debt mix: having a mix of types of debt and credit lines is generally beneficial to your score, but one must be careful not to take out debt they cannot afford to pay back.
Here are some common misconceptions regarding credit scores:
‘You want to carry a balance on your credit each month.’This is categorically false. Having ACCESS to credit will help your score, but it is always in your best interest (pun intended) to pay down your credit card in full each month.
‘Close credit cards and other accounts you don’t use anymore.’ Having access to more credit helps your credit score, so it doesn’t make sense to close accounts. You do want accounts to be at zero and ensure you pay down balances timely and in full.
While each person’s situation is different and unique, here are some general tips for improving your credit score, particularly if you’re young:
Be an authorized user on your parents’ credit card: One of the largest factors impacting your credit score is the length of history, so having a head start by being on your parents’ account can work wonders for when you’re ready to have your own credit.
Utilize fixed payment lines of credit: Having debt that has a fixed payment each month and a low interest rate is a great way to build credit, as opposed to opening a credit card and risk running too high of a balance. For example, if you need to buy furniture, ask if the supply works with a bank to finance the purchase. You’ll pay a fixed amount each month for 6-48 months (usually) and have a new account that’ll show as access to credit.
A low balance starter card: If you absolutely must have a credit card, get a starter card with a low credit limit, say $500. Put small purchases on it each month and pay it down in full to avoid paying interest. The card issuer may raise the balance over time, so be careful not to use more than you can afford to pay back. A good rule of thumb is to have at least double the cash for any purchase you put on a credit card, to ensure you’re able to pay it down.
Keeping debt levels low and manageable gives you the flexibility to invest discretionary income and continue to build both a solid base of assets and a good credit score.
If you have any questions regarding credit scores or would like to work with an advisor to manage your debt, hit the ‘Contact Us’ tab at the top to work with us today.
Happy investing!