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How credit card use impacts a credit score

Escondido residents, like millions of Americans, struggle with how to effectively manage their credit cards. No matter how problems arise, whether through unexpected medical expenses or the loss of a job, credit cards can often be a valuable emergency financial tool that can keep a family afloat during financial challenges. However, credit card debt can become a major problem if balances get too high. And when that happens, the issue of rebuilding credit can take center stage in a family's finances.

Too often people deal with poor credit as a result of not only their attempts to provide for basic necessities during financial hardship, but also because they don't know that certain behaviors are considered "red flags" to creditors. For instance, a recent article noted that when someone opens more than one credit card or credit line within a short period of time it may have a negative impact on that person's credit score.

A perfect example of someone doing this without even really knowing about the potential negative effects is the ever-present discounts offered by retail stores to people who apply for their store credit card. Someone may think that the discount is great, so why not apply for the store card? But, that new store credit card will then pop up as a new account on the consumer's credit report.

Day-to-day expenses need to be met, but going to the credit card to make ends meet is a tricky proposition. As noted in the recent article, getting a cash advance on a credit card not only adds to credit card debt, but the interest rate on these types of charges is often much higher than regular purchases. Getting a cash advance from a credit card should not be the primary way an individual or family supplements income.

Effectively managing credit card use can be a good thing and can even lead to a higher credit score. However, these accounts need to be watched carefully, because if things get out of control oftentimes the only way to recover is filing for bankruptcy.

Source: StarTribune, "Subtle slips can damage your credit rating," Patricia Sabatini, April 1, 2014

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