3 Tips for Getting the Most From Your Credit Cards For Your Credit Scores

February 23, 2011
/ Saving Money & Frugal Living
/ By Jacob A Irwin

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The following is a guest post from Marc Chase, President of Product Development for My Credit Group, a website dedicated to helping consumers with managing their credit.

3 Tips for Getting the Most From Your Credit Cards For Your Credit Scores

When it comes to your credit report, you want to do all you can to make sure every account in your profile is looking its best. After all, you never know who might be looking into your credit history at any time.

For times when every little point can matter, here are 3 little-known tips to getting the most out of your credit score from your credit cards.

Proper Utilization

One of the most important and misunderstood aspects of maintaining a good-looking credit card account on your credit report is having the proper credit card utilization. For example, most consumers may not realize their credit utilization is broken down by credit score models into 2 categories: your individual vs. cumulative utilization; in other words, how each account looks on its own and how it affect your credit profile as a whole.

And since FICO, the credit scoring model used by most lenders and creditors to determine your credit worthiness, knows to look for both types of utilization, you need to know the best way to maximize your credit cards. In our experience, that means having a credit report that features 4 revolving credit cards – preferably from known card providers like Visa & MasterCard, over retail store cards.

Not that there’s anything bad about having retail credit cards, but typically, they’re geared towards sub-prime borrowers and come with added fees not found on regular credit cards. Generally speaking, these might only be a good idea for consumers working with credit repair services, looking to improve their low scores; if you can get a bank card or regular, unsecured credit card, go with that option instead.

Once you’ve got your 4 cards, we recommend keeping 2 cards at below 9% overall utilization and 2 cards with no balance at all. Remember to use these cards for very small purchases at least once every other month to avoid having them closed.

When to Pay Your Credit Cards

Ask most people when they should pay their credit cards, and they’ll typically tell you they pay when they get the bill. But did you know that if you wait until the due date, you’re already too late?

You see, credit card companies often report your card balances a week or two BEFORE you receive your bill. So, if you have a balance and intend to pay it off as soon as you get your bill, you’re actually technically paying late. The card company has already reported the account with a balance; which your credit report will reflect for another 30 days until your next statement date.

How can you avoid this? Find out your when your card company’s statement date is, and make sure your credit cards are paid at least 2 days before that time.

Be Careful of Balance Transfers

This last one is a little tricky. A lot of consumers like the idea of transferring some or all of their balances from one card to another, especially if they’re undergoing credit repair or are just trying to clean up their finances. This strategy makes sense if you’re saving a ton of money in interest fees, or if you were recently offered a new card with an introductory offer.

But, transferring to an existing card could also have serious drawbacks.

In this economic climate, lenders have become very cautious and are on the lookout for any signs of financial stress from a consumer asking for a loan or new line of credit. Having a credit card with a huge balance all of a sudden could trigger a red flag and prompt the creditor to not even give you a second look. What your creditor could then do is lower your limit each time you make a payment to the account – and continue to do so until the account is closed.

So say you have an account with a $1000 limit, and you make a payment of $100. Next month, you’re limit could be down to $900, and so on. So make sure to transfer balances only when it makes absolute sense. You could end up hurting your score if you raise too many red flags.

How about you all? Have you used any of these tips before? What things do you do to get the most out of your credit cards?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

@Using your 2 cards with no balance for small purchases every month or else your account will be closed.

Does any one know if the credit card companies will actually terminate your account due to inactivity? I didn’t think that they could. I just thought that it improved your credit score to have a running history of transactions on each account (that you naturally pay off each month).

@When to pay your credit card balances – This is genius! I didn’t know that the credit cards don’t give you a chance to pay down your balance before sending the numbers off to the reporting agency to calculate your credit score! Good tip here!
@Balance Transfers – Another thing to look out for here are fees. Many credit cards will offer you a low 0% APR on your transferred balance, but before it hits the account, they’ll slap it with a 5% transaction fee. This could further add to your debt! Watch out!

***Photo courtesy of http://swipecard.org/wp-content/uploads/2011/02/Credit-Card-Swipe1.jpg

About the Author Jacob A Irwin

Hi folks! My name is Jacob. I am the owner and operator of My Personal Finance Journey. I started this blog in January of 2010 and have enjoyed the journey ever since. Since finishing up graduate school in Virginia in 2014, I have been working in biopharmaceutical development in Colorado. You can read more about me and this site here. Please contact me if you have any questions!

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