3 of 29

Write now Article Tools

Page 2 of 5

cards. This is counter-intuitive, because many companies offer special deals where you can transfer your balances from other cards to a single card with a low introductory rate (perhaps 0% for one year). Although it would seem smart to put all your debts on a single, low-rate card, this ends up hurting your credit. No doubt about it, this aspect of credit scoring is stupid and broken. But now you know how it works, so you can work around it.

Another example:
GOOD: 1 card, with a $10,000 limit and a $3000 balance ($3000 total debt, $10,000 total limit).
BAD: 2 cards, one with a $1000 limit and a $750 balance, and one with a $9000 limit and a $0 balance ($750 total debt, $10,000 total limit).

Once again, you can see that this aspect of credit scoring is stupid and broken. Although the person with two cards has less debt, his score will be much lower because one of his cards carries a balance at 75% of its limit. It's the ratio on each card that matters, not your overall ratio and not your overall debt. And a single high ratio on one card will hurt your score much more than low ratios on other cards will help.

The good news is that you can easily game this system to improve your score. If you must carry a balance, spread out your debts among your credit cards, to keep the ratios low on all of them. If one of your cards has a much higher limit than the others, then you can carry a slightly higher balance on that one, because the ratio will stay low. For example: the person with 2 cards and $750 total debt (in the example above) should put $675 of the debt on the card with the $9000 limit, and $75 of the debt on the card with the $1000 limit. That equalizes the ratio of balance-to-limit on both cards at 7.5% (instead of the 75% ratio on one card, in the example above).

Another thing to be aware of: Some creditors routinely fail to report your credit limit to the credit bureaus. You may have a card with a $10,000 limit, but when you look at your credit report, the reported "limit" may be $0 or whatever your highest historical balance was. This unfairly damages your credit, because the credit bureaus are too stupid and broken to properly account for it. If you discover this discrepancy on your credit report, you can ask your creditor (likely a credit card company, like Capital One) to properly report your limit. If they don't help you, then you should seriously consider closing or never using that account. You may think that your diligent use of that card is helping your

• << previous page
• 1
• 2
• 3
• 4
• 5
• next page >>

Add your voice

Know something about How to build your credit?
We want to hear your view. Write now!