Credit Management: Do’s and Don’ts

Do: Investigate all your options before opening a new account. Research is very important before committing to credit agreements. Consumers should consider how the card will benefit their life, which cards offer the best rates and annual fees, what the terms are, how they are rated, and what the impact to credit will be. There are many credit card sites that categorize cards by type, what score would gain approval, and all the information about the card. This is a great way to learn before randomly applying for credit. Opening credit will reduce your average age of credit and can drop your score, so be picky before selecting a card.

Do: Take advantage of zero percent credit card offers. There are many issuers who offer a promotional period with 0% interest. Just be sure to read the fine print, some of them charge a 3-5% transfer fee and will charge retroactive interest on the total transferred balance if it isn’t paid off in whole by the end of the period. Also, if you’re using it consolidate and pay down debt, try to pay off the debt over time rather than waiting until the end of the promotional period.

Do: Use your revolving accounts. If consumers do not use their revolving credit these accounts become inactive, and grantors can close them if they so choose. Besides closed accounts, scores can drop up to twenty plus points for inactivity of credit. This means that revolving credit accounts must be used consistently to ensure the best score benefit. To be safe one should use their credit cards at least once every six months. This does not mean they need to be maxed out. Even small charges will keep the account status active and prevent creditors from closing accounts.

Don’t: Open many new accounts prior to a major purchase. Average age of credit can be an excellent asset to those with old credit and must be protected. Credit scores reward consumers who have been in the credit game a long time since it shows they have a lot of practice managing credit. Some may even have earned an extra 40-70 points on their credit score because of it. However, if a consumer is looking to enjoy refinancing or buying a property in the next few years, opening a new credit card could drastically affect this process.

Don’t: Close healthy aged accounts as better credit card offers appear. Some consumers choose to close other unused cards thinking they are no longer necessary. When in fact doing this can really hurt their scores. Not only can this impact the average age of credit since the account can fall off the reports two years after inactivity but having higher totals on revolving credit limits is important to the health of credit scores. Once a card closes the total revolving debt limit is reduced on that consumer’s credit portfolio giving him less leeway to increase balances. Since balance to limit ratio’s affect credit scores dramatically on revolving credit the higher the aggregate limits the more flexibility the consumer must increase balances.