You Can Use Credit Cards To Improve Your Credit Score

For some consumers, it is credit card use that has destroyed their credit score but credit cards are not inherently evil and in many cases can even help your credit score. Responsible credit card use important for everyone’s finances and using credit cards correctly, you can do a world of good with your personal financial situation.

Here are some tips to get the most benefit from your credit cards and help them help your own credit standing:

Utilize More Than One Credit Card
If you have more than one credit card but rarely use more than just one, you may want to dust off those other cards, especially the cards you have had for the longest period of time. Your credit card history and  the length of that history is a chief component in the calculation of your credit score. If you are using credit cards you have had for many years, it can reflect well on your credit score. The key here is moderation. Use the credit cards you have to make small purchases and then pay the balance off in full each month. Only charge what you can afford to pay in cash so you’ll never worry about carrying a balance. The biggest mistake you can make is maxing out the credit limits on all your cards and subsequently destroying the solid credit history you have build over the years. Also, keeping your credit cards listed as active will result in the credit card companies continuing to report the good news to the credit reporting bureaus each month, thereby further improving your credit score.

Closing Accounts Can Drag You Down
Just as it’s important to keep credit cards active, it’s also important to keep the accounts open. Those people with too many credit cards feel that they need to close out all of the accounts that they do not use to make their credit report look better. The reality is whatever accounts you have or had opened in the last seven years will continue to show on your credit report. Closing accounts will not help but will hurt your situation. Do keep low or no balances on those credit cards and revolve around which cards you use. The most important thing is to pay monthly and on time, and don’t go over your limits.

Limit Your Balances
Just because you have a credit line of $7,000 doesn’t mean you have to spend that much. Lenders and other creditors want to see a good balance between how much credit your have and how much you are actually using. Credit in use should be 30% or less than your total allowed credit.

Don’t Open New Accounts
If you have active credit cards, don’t pursue new ones. You’ll disrupt your credit to debt ratio and take a few hits on your credit score as well. If you are looking to improve your credit score in advance of making a big purchase, like a mortgage, you won’t want to lenders to see a bunch of hard credit inquiries. It may sway their decision and you’ll be viewed as a risk.

Using credit cards to your advantage can have a positive influence on your credit score and help your credit worthiness. The rule is to keep your credit card use and accounts in moderation. Don’t have too many, don’t have too few, and always use them according to your own personal financial situation. Spend wisely and pay off your balances as soon as possible.

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This entry was posted on Friday, June 26th, 2009 at 9:26 pm and is filed under Credit Card Advice, Credit Card Use, Financial Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.