Using Credit Cards to raise FICO

[Anonymous]

what is the best way to manage your revolving credit for new CC accounts? should you charge up your CC then pay them off to see a score jump? should you just keep them all at a low balance to maintain a low ratio? should you keep some at zero?

[Jazzzy]

I think most would advise that you keep your total utilization <9%. Also, don't get close to maxing out any of your cards, and watch how many of your cards show balances. My husband and I lose points if we let 3 of 7 cards report a balance vs. 2 cards of 7 reporting a balance.

Also, to really tweak your scores, go online and pay your balances before they report to the credit bureaus. Manage what reports. Leave a tiny balance on one card, and then pay that off immediately after it reports.

You NEVER need to pay interest or carry a balance over from month to month in order to raise your FICO scores.

[Anonymous]

thanks! I only have 4 credit cards. One has a low balance and the other three have no balance. Are you saying not to use some of them at all? Or should i just make sure  to leave a zero on a few of them each month, then continue to purchase and pay off the others while maintaining 7% or lower ratio?

[Anonymous]

Lynette, in my previous post i meant to type 9% or lower ratio

[Anonymous]

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@Anonymous wrote:

thanks! I only have 4 credit cards. One has a low balance and the other three have no balance. Are you saying not to use some of them at all? Or should i just make sure  to leave a zero on a few of them each month, then continue to purchase and pay off the others while maintaining 7% or lower ratio?

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Hi srashada,

For FICO scoring purposes, you can use your accounts as much or as little as you like.  The important thing is what reports.  So make sure they report no balance on all but one card; and make sure that one reports less than 9%.  Most creditors (not all) report on the statement date.  HSBC (and USBank, if I remember correctly) report on the last day of the month.

On the other hand, to keep your creditors happy, you will want to use your cards.  Unused cards run the risk of being CLD'd or closed.

No need to try to max them out during the month.  Just be sure to use them every few months for a small purchase - or more if that works well for you.

[Jazzzy]

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@Anonymous wrote:

thanks! I only have 4 credit cards. One has a low balance and the other three have no balance. Are you saying not to use some of them at all? Or should i just make sure  to leave a zero on a few of them each month, then continue to purchase and pay off the others while maintaining 7% or lower ratio?

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As beam said, use all of your cards occasionally. I don't know if you have any small membership or dues charges, for example. We have a book club on one of the cards we don't use and our Netflix bill on another. That way the cards show usage, and I don't have to remember to use them. You don't need to use them all every month, however. Just make sure each of them gets a charge every 3-4 months. Learn when your cards report, and have them all show zero except for one. Then pay that one off right after the statement cuts.

All of this tweaking ins't necessary if you don't plan on apping for credit any time soon, but it's a habit we've gotten into at our house. We know we are going to pay before the charges report, so it makes us as disciplined as if we were paying cash.

[Anonymous]

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LynetteM wrote:  We know we are going to pay before the charges report, so it makes us as disciplined as if we were paying cash.

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And that is absolute magic. 

I think this has been a paradigm shift for me.  I wish I would have understood that when I was much younger!  It's what makes credit cards work for us.