Credit Building

Credit card use and credit scores

Nov 16, 2022

A credit card lets you borrow money up to an agreed limit so you can make purchases beyond your immediate means. This can be great if you need to spend more than you have saved. But remember, unlike your debit card which gives you access to the money in your bank account, credit cards are borrowed money! 

Credit cards often have interest-free periods and you will have minimum monthly payments to balance the amount you’re spending on the card. If you can hit your monthly payments on time you won’t pay interest on the balance. However, missing payments can result in interest rates charged at a high APR (annual percentage rate).

A lot of people use credit cards everyday. They can be a really useful tool to balance your finances when used properly. But what do they mean for your credit score? Can you have a credit score without a credit card? And what about your debit card? Loqbox is here for you with the lowdown on credit cards, debit cards and credit score.

Can you have a credit score without a credit card?

Yes, you can absolutely have a credit score without a credit card! Your credit score exists to give you an idea of how a lender may view your credit report.  So the higher your score, the more likely it is that you have a healthy looking report and  long history of using credit well in the past (no missed payments etc.).

Your credit history includes any borrowing and payments that you’ve made; car finance, mortgage payments, mobile phone and energy bills are all included on your credit report. It’s possible to have a “good” or “excellent” credit score without even owning or using a credit card. More on that later!

The three main credit reference agencies (CRAs) in the UK are Experian, Equifax and TransUnion and they each hold a credit report for you. They collect information about you from creditors and lenders who you’ve dealt with (e.g. your phone contract provider). They send information about how you managed your finances to these CRAs. Equifax, Experian and TransUnion then use it to update your credit report and calculate your credit score. This can include credit card companies, but also other products as well.

Your credit report tells potential creditors how ‘risky’ it might be to lend you money. They use this information to assess whether they are willing to offer you mortgages, loans and credit cards. We have a deeper explanation of what a credit score is here.

Does paying the minimum balance on my credit card affect my credit score?

It can do. But it depends on how much you borrowed. When you borrow on a credit card, you have a minimum monthly repayment to make. If your minimum monthly payments pretty much cover what you borrowed that month, it won’t hurt your credit score. 

However, if you are using most of what you can borrow on your credit card but you are only ever making the minimum repayments every month, creditors might guess that you are struggling with your finances.

And if you miss your monthly minimum balance your credit score can plummet, you could be hit with fees and in the worst case scenario be landed with a default or a county court judgment (CCJ). Missed payments stay on your credit file for six years (eek)!

How do I use my credit card to improve my credit score?

It is possible to use your credit card to prove to other potential lenders that you can handle your finances responsibly. Using your credit card frequently and making all of your payments on time can improve your credit score. Also, being able to show that you have previously been approved for a credit card will make other potential lenders feel more comfortable about your application.

But having too many credit cards with high limits might work against you. It could suggest that you’ve got too much borrowed money and you’re struggling with your finances. It is a good idea to keep your borrowing across all of your accounts under 25% of your available limit (this doesn’t include mortgages).

You can expect your credit score to be positively affected about three months after you start using a credit card, assuming you’ve used it for regular purchases that you can afford to pay off in full (food shopping, fuel, commuting costs are some common examples). Also, credit cards you’ve managed responsibly for a long time will look great on your credit score.

Does not using my credit card affect my credit score?

You might stop using your credit card once its promotional benefits have passed or when the balance has been paid off. But using credit cards responsibly is one of the best ways to build your credit score.

After a long period of inactivity, your card issuer may close the account. If you don’t want that to happen (and if it’s your oldest credit card, it’s better not to close it) — just be mindful  of keeping an eye on it to ensure you’re  avoiding fraud on inactive accounts, which are often targeted.

However, if you have mature credit cards with great payment records they will do wonders for your credit score so maybe you’d benefit from using, rather than cancelling, them?

Do I have a credit score with a debit card?

Debit cards don’t affect your credit score. No matter how well you manage your money with a debit card, it is very unlikely to have any impact on your credit score because debit cards simply give you direct access to your own money.

To build your credit score, you need to be using credit. So where credit card activity shows up on your credit report, debit card transactions won’t be recorded.

How can I improve my credit score without a credit card?

Credit cards can be a great way to balance your finances or make useful purchases quicker than you’d otherwise be able to afford. But it depends if you can keep up repayments and resist the temptation to overuse credit.

The very high interest rates that kick in when things go wrong can quickly become a problem. If you’re trying to improve your credit score and you don’t think you’re ready for a credit card, you might be wondering what other options you have?

Don’t worry, we’re here to help. If you want a proven way to give your credit score a boost, why not get started with Loqbox? 

With a £2.50 a week membership you can have access to our range of credit-building tools:

  • Boost your credit score by 125 points in six months (on average) with Loqbox Grow.
  • Grow your credit score while putting money aside for something big, using Loqbox Save

Or make your rent money count with Loqbox Rent. We’ll help you to build your credit history by reporting your rent payments (whether they’re to a landlord, housing authority or family member) to Experian.

Get the credit you deserve

Build your credit and master your money for just £2.50 a week

Get started