Some consumers maintain several credit cards to improve their credit score. Be careful if you plan to do this. These thin plastic cards may look like they cannot nick your fingers, but they are actually double-edged swords. Sure, it can give your FICO a boost but if your use of them is ill-judged, it can send your credit score hitting the skids. This article discusses some of these blunders to avoid and some metrics on how your credit score is affected by your credit card usage.
2 Credit Card Misconceptions That Can Hurt Your Credit Score
1. Promptly paying only one or a few monthly credit card dues can make up for not paying the rest. Let’s say you have five credit cards; so each month, you receive five separate bills. Usually, this will cost you more per month than if you only have to pay one or two bills. But you have to pay all of these to maintain a good credit standing. Do not ever think that promptly paying only three or four bills will help to compensate for not paying the other bills, because this is not so. The damaging effect of paying late or not paying one or more bills overrides the favorable effect of paying on time for the other accounts.
2. Paying delinquent bills can erase the negative logs in the credit report. Dream on. Late payments are late payments. There is no amount of payment that can change that fact. Perhaps paying the balance in full can make a good impact on your credit record, but still the fact remains.
How Your Use of Credit Cards Affect Your Credit Score
Maintaining multiple credit cards is not enough to raise your credit score. It is how you use them that counts. There are several metrics that come into force when you have several of these plastics. Some of them are discussed below:
1. Utilization Rate. One of the aspects that will be used to compute for your credit score is how you utilize your credit vis-a-vis your credit limit or the ratio of amount of credit used to the amount available. As an illustration, let’s say you have a credit card with a credit limit of $15,000, and for that particular month you used it for purchases that amount to $5,000 making it your current balance. This means that your utilization rate is 30 percent. Be happy to have this low rate, because this indicates that you do not use your credit untethered.
2. Number of Years of Card. Cards that you have maintained for quite a number of years already is an indication of a longer term credit relationship, which is, of course, a good thing.
3. Number of Credit Cards. As already mentioned, having several credit cards can improve credit score, but having too many can do just the opposite. How many is too many? Well, having more than your fingers can count may already be in excess. Consider bringing the number down to 4. Doing this will not just protect your score, it will also allow you to monitor your credit accounts better. Just keep in mind that should you decide to close a number of credit card accounts, cancel the newest first and those that offer the worst terms, such as those with steep APRs or annual fees.