Friday 6th of December 2019

How to Take Control of Your Finances by Using Credit Cards

Your credit score is the key to your financial future. Lenders view your rating as an indication of how well you manage loans and credit. However, most consumers are baffled over how their behavior impacts their standing. Unbeknownst to many cardholders, you can actually improve your number by using credit. In this post, we’ll answer a few of the most common questions about borrowing and improving your rating.

  • I have one credit card that I use frequently and three more that sit in a drawer at home. If I’d like to buy a home in the next two years, should I start using and paying off the inactive ones to improve my rating? Yes, you should start using the inactive ones. If they are expired, you might have to call your creditor to ask them to send a new card. Similarly, if they have very low limits, you might also call your creditor to ask for a limit increase. Credit card utilization, or the credit available compared to the amount being used, is critical to your FICO score, so the higher your limits, the better.
  • How often should I use them to keep them active? This will vary by account, but it’s probably a good idea to use your cards every six months or so to keep them active.
  • I have 14 credit cards, and I am about to apply for a mortgage. Should I close some of the cards beforehand because I have too many? In terms of your FICO score, it’s almost impossible to have too much credit. Closing the accounts will only hurt your rating because it will decrease your capacity. The balances-to-limits ratio is a big determinant of your standing, and closing accounts will lower your total limit.
  • When does your score suffer because you have too many cards? The only way your number would suffer because you have too many cards is if you either had high revolving balances on those cards or if the number was inappropriate for your profile. For instance, if it seems like the right number of cards for your profile is four, then you might lower your rating slightly if you have five or two (too many or too few).
  • What do I need to do to improve my score besides paying on time? The second-biggest determinant of your FICO number is the amount owed, or credit utilization. If you have a card with a $5,000 limit that is maxed out, even if you pay on time, you are still hurting your rating. Creditors like to see low utilization rates, meaning you only use a small portion of the credit available to you. In the short-term, you can also improve your rating by avoiding opening new accounts. New accounts will temporarily lower your number and will place inquiries on your credit. Too many inquiries can also damage your rating.