Your Credit Card Purchases Do Matter
It matters significantly how much you rack up each month in credit card spending. Even if you pay it off by the due date, your creditor will report your balance for the month to the three credit reporting bureaus.
This will worsen your credit utilization ratio, incorporating a critical 30 percent of your credit score.
If you must make routine large purchases with your credit cards, try paying an extra payment ahead of the due date each month to keep the balances low and manageable looking to the credit scoring algorithms.
The Truth About Credit Card Limits
The truth about credit limits is that your creditors never intended for you to use your entire credit card limit. Think of these amounts as a test of your responsibility and self control. The scoring algorithms want to observe how well you can handle this tantalizing credit line. They like to see you use less than 30 percent of your available credit (and even better less than 10 percent).
Certainly this is a guideline and not a hard and fast rule. One thing is certain with this critical component of your credit scoring model: the lower your total credit utilization proves to be, the better your score will be.
Under the Vantage Scoring model (and per Experian), exceeding the 30 percent credit utilization level will cost you significantly in points. Remember that those consumers who possess a FICO score of 800 are only using an average of seven percent of their total available credit.
The Best Strategies to Repay Your Debt
The best credit card balances to pay down first are those with the highest interest rates. By reducing the monthly balance that you carry, it will lower the amount of interest that is tacked on to your balance every month. This will save you interest expense (real money over time) and reduce the amount of time you need to pay off your overall bills.
You may find yourself in a position of too much debt and not have a clue as to how to efficiently pay it down. According to Business Insider, there are give good strategies that you can use effectively to help you escape from too much debt.
This starts with asking your creditor for a lower interest rate. If you have paid your bills on time for years, they may just agree.
A lower interest rate will decrease the additional charges that are being added to your account balance each month. If you combine your request for a lower interest rate with an offer to make a larger lump sum payment on the balance while talking with them, it might convince them to help you.
Secondly, you should also try to make double your minimum monthly due payment. This will dramatically reduce your balance and the length of time you need to pay it down. Third, experts recommend that you go after the most expensive interest rate debt first. Anything that you can pay over the monthly minimums due will always help reduce interest costs and time frame to repay your balances.
Avoid making only minimum payments as much as you possibly can.
You have two other options to reduce interest rates on high credit card balances. You could try to open a balance transfer card and move the balance over to a zero percent promotional offer. You might also apply at a bank or online for a personal loan and pay down the highest interest rate balances on your credit cards. Using these strategies can cut your repayment time frames down on high APR debt by as much as half.
Additional Credit Card Considerations
Joint accounts are only as good as the least disciplined person on the account. Whether or not your joint account holder makes minimum payments or pays off their charges, you will ultimately also be responsible for these in any event. Your credit score will be impacted by their not making timely payments, so be very careful of the person you open a joint account with on a credit card.
Remember that there is no such a thing as a joint credit score, only two credit scores that are equally impacted by the decisions that the joint account holders make.
You want to be extremely careful about closing existing accounts. This hurts you in the credit age category (counting for 15 percent) as it reduces your average credit card account age. It will also generally increase your credit utilization ratio. If it jumps this number to over 30 percent, you will lose significant points in this second most important scoring category (that counts for 30 percent).
In general, you should only close an account if the annual fees are so high that you can not justify keeping it open. It is a better idea to call and discuss your concerns with the creditor.
They may be wiling to waive the annual fees for a year to keep you as a customer, in particular if you are regularly using the card or carrying a balance on it.
If you can manage to qualify for a no annual fee credit card, this is always a great benefit. It allows you to use the creditor’s money every month for the length of the grace period (20 to 25) days at no cost to you. If you do not carry a balance each month, then the cost of the credit to you is effectively zero.
The trade off to a no annual fee credit card is often that they will not usually offer a rewards program.
For many people this is an unacceptable trade off. These credit cards rewards and points programs have turned out to be more popular than ever before. If you use them to attain the maximum cash back or travel rewards possible, it can easily exceed the annual fee for having the card and its lucrative rewards program.
Some of these cards like the Chase Sapphire Rewards give you even $700 in free travel if you harness the opening charging bonus to its fullest extent.