Since the Credit Card Accountability, Responsibility and Disclosure Act (CARD) was signed into a law, there are more to maintaining good credit than just submitting payments on time or avoiding multiple credit card applications.
Nowadays, a cardholder could be inflicting damage to his/her credit score by maxing out credit even though he/she is a prompt payer. So what does it take to build and maintain good credit? Check out the following advice:
Credit utilization. Credit utilization makes up 30% in the FICO scoring system. That means maximizing your credit card’s limit can put you in big trouble, even if you currently have a high credit report score or even if you are consistent with your payments. That’s because your credit-to-debt ratio is taken into account in determining your credit-worthiness.
Some creditors may actually regard you as a “high credit risk” if they look into your credit reports and see that you’ve been using more than 50% of your allowable credit. This is why financial experts recommend staying below 30% of your available credit. If you’re really aiming for a score higher than 720, make sure that credit card charges don’t exceed 10%.
With this in mind, you need to be more watchful. Although your credit card offers a low rate, you shouldn’t use it to the fullest as doing so can hurt your score. If you have at least two to three credit cards, you should spread out your debts to make sure that you keep your credit usage minimal.
Nevertheless, it doesn’t mean you should apply for more credit cards than you can handle. Ultimately, you need to be smart about utilizing your credit lines and keep your spending in check.
Interest rate changes. The new Credit CARD law require credit card companies to send a 45-day advance notice if they plan to implement changes on their rates. However, the advance notice will only be helpful if the cardholder regularly checks alerts or notices from his/her issuer. Otherwise, the note might skip your attention and you may be surprised to find out later on that your initial low rate has increased.
Cardholders are encouraged to request for a lower rate and see their chances. However, before you call up your credit card issuer, you want to make sure that you are in the perfect position to make such request. Obviously, when you place that call, your account will be closely reviewed. If your record is not as impressive, your issuer may cut your credit or impose penalties on you.
Should your issuer refuse to retain your present rate and push through with the increase, you can OPT OUT or close your account before the changes become applicable. Keep in mind that your issuer can only implement the new rate on future purchases so you can pay off your balances and still enjoy the previous rate.
However, before closing out your account, make sure that you can pay off your balances completely to avoid hurting your score. Furthermore, be careful about closing an old credit card as it could mean erasing the oldest parts of your credit history and pull down your score. In the end, you must weigh the pros and cons of keeping a credit card active or cancelling.
About the Author:
Suzy Vanstrusen is a credit analyst and a writer on the website EZCreditRepairSolutions.com. She has been providing consumers with tips and wise information about credit repair as well as helping you out more with your bad credit loans. Copyright © 2011
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