Which is better to raise credit score?
Which is better to up your credit score?
Keeping your credit card balances at $0 or
Putting a few small purchases on them and paying them off each month.
I know that making your payments on time and all that other stuff is good but I just paid off my last credit card and was wondering what was better. Any info would be great.
Re: Which is better to raise credit score?
credit card companies consider an 'ideal customer' to be somebody who charges their card up to about 50%-60% of the credit limit every month, and then pays the balance down to about 25%-30% of the credit limit. This avoids 'scaring' the credit card company by loading up enough charges to come near the credit limit, and also allows the credit card company to earn money via interest charges on the 25-30% balance carried into the next month. Paying the card balance down to zero every month is actually a 'bad' thing to do, since it deprives the credit card company the opportunity to make money on interest charges.
Re: Which is better to raise credit score?
Quote:
Originally Posted by Melonie
credit card companies consider an 'ideal customer' to be somebody who charges their card up to about 50%-60% of the credit limit every month, and then pays the balance down to about 25%-30% of the credit limit. This avoids 'scaring' the credit card company by loading up enough charges to come near the credit limit, and also allows the credit card company to earn money via interest charges on the 25-30% balance carried into the next month. Paying the card balance down to zero every month is actually a 'bad' thing to do, since it deprives the credit card company the opportunity to make money on interest charges.
I'm not sure about this. I use my cards and pay the balance in full every month. Before I purchased a car, my credit was 660-ish. A year after I bought the car, my credit went into the 700s.
Re: Which is better to raise credit score?
Quote:
Originally Posted by JoeyJones
I'm not sure about this. I use my cards and pay the balance in full every month. Before I purchased a car, my credit was 660-ish. A year after I bought the car, my credit went into the 700s.
I would say that the credit history now being created by your car loan, where you're making regular monthly payments of hundreds of dollars on time but without early repayment, is much more significant than the history stemming from your credit cards.
Re: Which is better to raise credit score?
You should use the cards to establish that you have a steady pay record. Use the small amounts like you plan and pay that sucker off every month.
Part of your score is regular payments and another part is your debt to credit limit ratio.
Google is your friend:
and
Also note that studies show that people who use credit cards spend more than people who buy with cash - it is so easy to slip that card through the machine ya know. So keep an eye on what you are buying.
Be choosy about what cards you get - I am always getting a boat load of card offers (I put thousands on my personal AmEx card for business and always pay it off in the grace period) as well as car financing offers etc. Most of em go right in the shredder unless I see an interest rate of 10% or so. It is worth it to wait around or call up and say you want a lower rate or else you are gonna close the account.
Don't get more credit than you're worth - otherwise when you really need it - they will be like "Ah hell, this person has xxxx amount of credit already."
Re: Which is better to raise credit score?
Quote:
Originally Posted by Melonie
I would say that the credit history now being created by your car loan, where you're making regular monthly payments of hundreds of dollars on time but without early repayment, is much more significant than the history stemming from your credit cards.
I agree that the car loan upped my score by 100 pts. But before, 660-ish is a pretty good rating for a girl in her early 20s with no credit but her cards. And those cards were never, ever subject to a finance charge.
Re: Which is better to raise credit score?
It depends on where you are in credit worthiness. If you are bouncing back from some bad times, if you are re-establishing your credit, or if you are building credit for the first time, it is better to charge like Melonie said.
If you have a solid credit history and pay all of your bills on time and have no lates showing up on your credit report, then it helps your score more if you pay your card off every month. At first, it may negatively impact your score (for having open/unused credit lines) but after a few months, it'll even out.
I have a friend who ONLY uses credit cards...never leaves a balance on them...pays them off in full every month and has no car loans, no mortgage and has a credit score of 795.
Re: Which is better to raise credit score?
If you take a look at a credit report the only thing credit cards show about you is if you paid your payment on time each month. If you pay your balence off each month on time it shows you making a timely payment. It does not show or even make a notation about if it was just a payment or the whole balence itself.
Available credit is a factor in your Fico score as well. Debt to income ratio is a factor when getting any loan.
Knowing those two things I personally dont see how carrying a balence could help your credit scrore in general.
Re: Which is better to raise credit score?
^ Sort of true. But, you'll see the "high limit" and the "balance". If you have a high limit of $3,000 and have a balance of $2,500...then it'll drop your score. If you have a high limit of $3,000 and have on-time payments, but no balance, then it'll drop your score temporarily before it jumps up if you do this consistently. If you have a "high limit" and a 40% balance, but make your payments, then your score will drop for a while before climbing back up if you keep your balance under 50%.
ALL credit reporting agencies report what your loan amount/credit limit is vs. what your current balance is. How do you think banks come up with accurate depictions of DTI??
Re: Which is better to raise credit score?
Here's the situation I'm in:
Five years ago I was about $45K in debt between my student loans and my credit cards. I paid off my student loan a little over a year ago, and since then have been whittling down my credit card balances. Today, I've only cut that $45K figure in half, but by this time next year I'll have paid the whole thing off.
My question is: I have six credit cards, and really only use one, along with carrying the balance transfer from my other cards on another). Would I actually be better off keeping the cards I have (which have gawd-awful APRs) or should I close most of them (thinking of keeping no more than three, by closing all of my accounts when they're paid off and opening new cards with lower APRs)?
Re: Which is better to raise credit score?
Long standing credit is also a factor in your credit score.
My advice would be to take a look at how much credit you have right now. It is good to keep unsecured (without collateral) loan amount, including credit cards, to about $15,000 per household depending on income.For example if you have a small debt consildation loan at the bank for $5,ooo and a credit card with a credit line of $10,000, you would be at your household max. Available credit is also important in your credit score. Available credit meaning the percentage of your credit that is not in use. Keep that to around 50% or less is best. Any amount more will count negative on your credit score. For example lets say you are carrying a balence of $5,000 on your said credit card above, that is 50% available credit. If you were carrying the same balence on a $5,000 credit card limit that would be 0% available credit and very bad.
Taking a look at both of these factors, keep the cards you have had open the longest open. After you pay them off they are more likely willing to work with you on the interest rate. If they dont , cut up the card. Just watch for the blank statement each month so it doesn't fall into the wrong hands.
It is also a good idea to limit your number of credit cards you use to one or two. It is easier to keep track of your over all balances. Keeping your spending in check is the best way to protect your credit score.
Good Luck :)
Re: Which is better to raise credit score?
The_Oceans, you may want to call those card companies if you've had them for a while and ask them to drop your rate. Keep the ones that do that and cancel the ones that don't. If NONE of them drop your rate, slowly close those cards down and replace with lower APR cards.
But, Vamp is right...you should always keep the card that has the most "history" on it.