IS IT POSSIBLE TO HAVE A GOOD CREDIT SCORE WITH ONLY ONE CHARGE ACCOUNT?

The short answer is yes, anyone can build a good credit rating by using a single charge account. Many people are confused about the difference between a credit card and a bank card, more commonly called a debit card.

Credit Card

In general, a credit card lets you make purchases for which you are billed at a later date. Most credit card accounts allow you to carry a balance from one billing cycle to the next, so that you can pay off the balance over time. Be aware that you will pay interest on any remaining balance that carries over to the next month.

Debit Card

A debit card is the opposite of a credit card. A debit card allows you to make purchases using funds from the bank account associated with that card. A common misconception about debit cards is that they report history to the credit bureaus, and thus help your credit scores. Unfortunately, this is not true.

WHAT DOES THIS MEAN FOR YOUR CREDIT SCORE?

There are many ways to build your credit score over time. Credit cards have a strong influence on the credit score calculation. They can be just as effective as any other credit product in helping consumers establish a credit history.

Whether you have a credit card or any other type of credit account, the most important factor in building and improving your credit score is to use credit responsibly. If you can pay bills on time and use credit only when necessary, then you are on the right path to building a solid credit history.

CREDIT PROBLEMS – HOW THEY AFFECT YOUR CREDIT SCORES

You may run into financial difficulties that impact your credit score. Some scenarios may severely impact your score, whereas others may have a minimal impact on your credit scores. A common question we here is, “Why does one negative incident weigh more heavily on my scores than another?” This is a great question, and the answer is found in the scoring algorithms more commonly known as scoring models. Each model will treat a negative item differently, so the impact on your credit score may vary from one negative item to the next.

Here is a comparison of the impact that credit problems can have on the credit scores of two different people: Josh and Vanessa. Note that their initial credit scores are 100 points apart.

First, we will give you a snapshot of Josh’s and Vanessa’s credit profiles:

(These statistics are estimates and this information has been cited from myfico.com)

Josh has a credit score of 680 and: Vanessa has a credit score of 780 and:
Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan. Has ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan.
An eight-year credit history A fifteen-year credit history
Moderate utilization on his credit card accounts (his balances are 40-50% of his limits) Low utilization on her credit card accounts (her balances are 15-25% of her limits)
Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago. Never has missed a payment on any credit obligation.
Has no accounts in collections and no adverse public records on file. Has no adverse public records on file.

 

Josh

Vanessa

Current Credit Score

680

780

Score after one of these is added to credit report:

Maxing out a credit card

650-670

735-755

A 30-day delinquency

600-620

670-690

Settling a credit card debt

615-635

655-675

Foreclosure

575-595

620-640

Bankruptcy

530-550

540-560

As you can see, there are many factors that impact your credit score. Some may be more damaging that others.

High scores can fall further. Notice that Vanessa would lose more points for each negative scenario than Josh, even though her credit score was 100 points higher than his. This is because Josh’s lower score of 680 already reflects his riskier past behavior. So the addition of one more indicator of increased risk on his credit report is not quite as significant to his score.