Credit Card Tips: Brief Synopsis
- Credit cards can drastically help – or hurt – your credit score.
- Keep balances under 30%.
- Never close an old account.
Credit Card Tips: Full Explanation
When people think of their credit score, on the of the first things that comes to mind is their credit cards. Credit cards are one of the most popular, if not the most popular, lines of credit. They can do a great deal for building your credit – but only if used correctly! If credit cards are misused, they can also become a huge hindrance to your credit report – driving your credit score down! There are a few tips, however, that NCF advises to make sure your credit cards are working for you.
One main factor of the FICO score model is known as the ‘credit usage ratio‘. This section takes into account how much of your credit lines you are using. The magic number here is 30: keeping your credit card balances under 30% will give you the best score. If the balance gets above 30% your score will take a hit. The closer your credit card balance gets to the credit limit, the more of a hit to the score. The largest score hit will occur if the balance goes over the credit limit.
Also, under the ideal FICO model the “ideal” person should have 3-5 credit cards. If you have had bad credit in the past, having 4 or 5 credit cards will build your score faster than if you only have 1 or 2 credit cards. See our rebuilding your credit section for info on getting more credit cards.
Never close a credit card if you can help it. Closing a credit card almost always lowers your FICO score. If you score is high enough you may not care but, in general, always avoid closing credit cards. Closing a credit card will adversely affect the amount of credit you have available and also will change the average length of your credit history. I hope this section helps you to manage your credit cards better!