I did a little research recently revealed that the middle class average U.S. household carries between $ 6,000 and $ 11,000 in debt from credit cards, depending on who you choose to believe. Each household also had an average of 5.4 credit cards. In 2006, 173 million Americans were holders of credit cards and that number should increase to 181 million in 2010.
As you know, your FICO (Fair Isaac & Company) score is used as a major indicator of your creditworthiness and playsa crucial role in your ability to obtain credit. This includes anything from credit cards to auto loans and mortgages. As potential lenders see, the higher your FICO score the better risk you are when it comes to extending credit. A higher score indicates a higher probability of repayment while a lower score indicates a lower probability. With so many Americans cardholders and as such carry large balances, it is important to understand exactly how the use of credit cards, or diversionas is the case in May, may affect your FICO score. Here are some things you should know.
Make your payments on time
This may seem like a truism, but the importance of making your payments on time can not be overestimated. Your payment history is the single most used (35%) to determine your credit score. Payments 30 days or later can be and are usually reported to the 3 major credit reporting agencies (Equifax, Experian and TransUnion) and anegative effect on your FICO score.
As of April 2009, 15% of Americans, or about 34 million people had made payments to the end of the period of 12 months. A full 8% or 15 million people had missed a payment in full. With the economy in its current state and unemployment rising, it is unlikely that these statistics will improve soon. So if you find yourself in this situation, you can take some comfort in knowing that you're not alone.
So always do your best to make yourpayment on time. You should leave yourself a block of several days to ensure your payment has time to francs before the due date. Many lenders have a policy of zero tolerance for being late, even by a day can cause significant increases in interest rates and late fees.
Always try to do more than the minimum payment. By paying only the minimum, you are greatly extending the repayment period and the amount you must pay finance charges. Current credit standards requireminimum payments equal to 1% of the outstanding balance plus interest charges. Assuming an interest rate of 20% means that the debt will double in 5 years. Making the minimum payment only, it will take more than 8 years to pay and you pay 160% of original amount in interest!
Also, make minimum payments raises a red flag with the company credit card. It indicates that you may have credit problems that puts you at greater risk of being unable to repay your debt. Consequently, thecorporate credit cards may increase your interest rate.
If you are having problems making your payments, please contact the company credit card. It may be a little humiliating, but you will usually find that they are willing to work with you to develop a repayment plan that you can afford. It is usually in their best interest to keep you as a customer whenever they can. Ignoring them will only cause matters to worsen. When my wife was fired, I contacted VISA and they cut my monthly paymenthalf and lowered my interest rate from 18.9% to 7.9%.
Carefully manage your balances
The second most important factor in determining your FICO score is the total amount of debt you have. Even if you do more than minimum payments in a timely manner, carrying large amounts of debt credit card makes you less likely to repay and can result in a ding on your FICO score. Make a point to acquire any new debt and repay what you owe.
Also, make sureyou do not have more than 50% of your credit limit at any one card and not more than 33% of your limit on all cards combined. Historically, this represented approximately 30% of your FICO score but it was received increased importance since 2009. It may even replace your payment history as the greatest single factor.
Terminate accounts or Not
This brings us to the last point in the previous section. If you paid by credit card, do you close the account or not? Theanswer will vary from person to person. If you have sufficient self-control not to charge the card again, I'd say keep the account open. If not, then it would be wise to close it.
Here's the reasoning. Suppose you have 5 cards with $ 2000 limit of $ 10,000 total credit available. To say the 5 cards have balances of $ 1,500. The outstanding balance on all cards is $ 7,500 and your use of credit is 75% ($ 7500 / $ 10000 x 100 = 75%). N too good, right?
Now, you enterlittle money wisely and choose to pay off 1 of the cards. Now, your outstanding balance on all cards is $ 6000 and your use of credit is 60% ($ 6000 / $ 10000 x 100 = 60%). Better, eh? Choose to leave this account open and you should see a nice little hump in your FICO score.
But if you choose to close this account, your total available credit is now $ 8,000. You still have $ 6,000 on the remaining 4 cards, but now use your credit remains at 75% ($ 6000 / $ 8000 x 100 = 75%). So you've lessavailable ($ 8,000) credit and 75% is used. Choose this option and you may well see a negative impact on your FICO score even if you paid a discount card!
Length of your credit history
Another 15% of your credit score is determined by the length of your credit history. People with high credit ratings tend to have 3 or more credit cards with low balances that have been maintained for a period of 7 years or more. Constantly balances from one card to another isa red flag for companies credit card. If you leave any accounts with some activity that is paid each month, you demonstrate to companies credit card that you know how to properly use credit.
Credit Inquiries
If you are looking to gain additional credit card, be selective and does not apply everywhere. Many applications lead to multiple inquiries on your credit file. Each of inquiries can potentially ding your FICO score a few points. Creditinquiries and new debt represents about 10% of your FICO score.
This is less a problem if you are shopping for a mortgage or car loan. All mortgage inquiries that occur within 30 days of each other are grouped together as if they were a single inquiry. For auto loans, the same thing happens but the limit is 14 days.
Credit Card Tips
* The rules for new credit card recently came into force this year. You should familiarize yourself with these changes and your new rights and privilegesmaximize your FICO score.
* Having too many accounts of credit card, even with a zero balance, may also lower your FICO score.
* The debt credit card revolving debt, as opposed to a car loan is installment debt. Revolving debt is considered less favorable than installment debt.
* Your credit score affects more than your ability to get a loan. Potential employers, landlords, cell phone companies and more may check your credit record as a judge of yourfinancial stability and even character.
* You should check your credit frequently. You can get your free credit report from 3 major credit agencies once a year. If you notice any errors or signs of identity theft, contests and it corrected quickly.
* Open up immediately identified credit card and check them for unauthorized use or billing errors. Report any questionable charges by writing to your company credit card to preserve your rights.
*Report any lost or stolen credit card issuer immediately! Do not wait! Most companies have 24 hours for telephone service for reporting stolen cards. You can find the number on your statement or the website of the company. If you report the loss before the card is used, you do not charge fees. If used before you report, your liability is limited to the first $ 50 per card.