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Charging everything onto your credit card? You may be hurting your credit score—here's how

You may be relying on your credit card more than ever right now, but CNBC Select spoke to an expert about why you should think twice before using credit to cover every expense.

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Swiping your favorite cash-back credit card, such as the Blue Cash Preferred® Card from American Express, can help you get valuable cash back while stocking up at U.S. supermarkets. Terms apply. With the right card, you can even earn rewards while staying home and streaming Netflix.

But just be careful about charging all your purchases onto your credit card, which can cause unintended impact to your credit score and your wallet.

Below, CNBC Select speaks with Erica Sandberg, consumer finance expert and author of "Expecting Money: The Essential Financial Plan for New and Growing Families," about how using your credit card for everything can hurt your credit score — and what to consider if you plan to swipe on a daily basis.

How can paying for everything on your credit card harm you?

The biggest red flag to watch out for when using your credit card is how close you come to hitting your credit limit.

Americans have an average of $22,751 in credit available to them across all their credit cards, but that doesn't mean you should use all of it. In fact, experts recommend keeping your credit utilization rate (your debt-to-credit ratio) below 30% (with some even suggesting as low as under 10%). This means that if you have $10,000 in credit available across two or three credit cards, you should really never have a combined balance of more than $3,000.

If your balances are too close to the amount of credit you are borrowing, you may appear to lenders and credit card issuers that you are living beyond your means.

"It's a clear indication that you used credit to get by," Sandberg says. "Remember, credit scores are for lenders to understand what kind of risk you are."

What to consider if you use your credit card every day

Every credit card offers a grace period of at least 21 days, giving you time to pay back your balance without incurring interest, even if it is high. 

However, your balances are reported to the credit bureaus periodically throughout the month, and when your total credit utilization rate tips over beyond 30%, you might see a ding in your score until it comes back down.

For this reason, some people make it a point to treat their credit cards almost like cash and pay off their balance nearly as soon as they purchase anything with their credit card. Doing this helps ensure you never pay interest on a credit card balance, plus it keeps your credit utilization rate low while showing you actively use the card.

And if you do use up too much of your credit limit, it could have a domino effect if you aren't able to afford to pay it all back on time. If by end of the month, you aren't able to pay off your high balance in full, your credit score will likely fall and you will also be hit with interest charges.

If you find yourself in this situation, you should at the very least make your minimum payments. You'll pay in interest, but it will help protect your score since on-time payments are the most important factor in most credit scoring models. If you can't afford to make your minimums, it's at this point that "your credit scores will start to plummet," Sandberg says.

Using your credit card to 'get by' in tough times

You may find that you are relying on credit more these days with the uncertainty surrounding the coronavirus pandemic. But you should try to make sure that you are charging carefully and judiciously.

"Eventually life will return to normal, and you don't want to have a slew of financial problems and credit damage to deal with," Sandberg says. 

When you need to borrow more than normal during this time, talk to your credit card issuer about a credit line increase so that your limit is higher and your credit utilization remains low. But only do this if you are confident you won't overspend on the new limit. And for some issuers like Citi, you may be denied if you've already asked for an increase in the last six months.

Make sure you also ask about financial hardship assistance if you think you will miss a payment due date in the coming months. It helps to be proactive where you can, and know that many issuers are offering help for those financially burdened because of coronavirus.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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