The way you use your credit cards has a huge bearing on your credit scores, so here are a few hints for using them to your best advantage.
First, pay attention to the elderly. Elderly credit cards, that is. Protect them even if you aren’t using them at the moment, because the longer your credit history the better your scores.
Since credit card issuers are now closing cards for non-use, be sure to take those old cards out and use them every 2-4 months. You don’t have to carry a balance or pay interest. Just make a small purchase and then pay the bill in full when it arrives.
This is a good practice for all of your credit cards, by the way. Those who don’t close your account could instead charge you an annual “inactivity fee.”
Pay down your accounts, but do it wisely. If your balance on one card is a higher percentage of use than on other cards, work first to pay that one down – even if it carries the lowest interest rate. Try to get all your balances under 30% of your credit line.
That means you should not consolidate high interest cards onto a low interest card unless you can do it without passing the 30% mark.
Yes, you’ll save on interest now, but if you’re going to need credit in the future, that savings will cost you in higher interest on future loans.
A strange quirk in the credit scoring models looks at each of your credit card accounts individually. So while you might have $30,000 in available credit, if you owe $8,000 and put it all on one card with a $10,000 limit, you’ll lower your scores. The same amount spread among all your cards won’t hurt you.
Ask for credit limit increases. But when you get them, don’t use them. Your aim is to widen the gap between what you owe and your available credit.
Never apply for credit you don’t need, and don’t let retailers run your credit report unless you have made the decision to buy using their financing.
Shopping for the best deal is smart when you’re making a major purchase. But allowing every store to check your credit will pull your scores down quickly.
That means you should resist those in-store offers of 10% off today’s purchases when you apply for their credit card. That 10% could cost you far more than your savings on today’s purchases.