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Archive for the ‘Bad Debt’ Category

Common sense would tell you that if you are trying to fix your credit score, you should cancel your credit cards, right?

Unfortunately, wrong.

This hurts your credit score, and in more than one way.

Credit scoring companies examine your credit history, and they want to see older lines of credit because they want to know how you handle credit. If all of your lines of credit are brand new, they feel they don’t know enough about you and your history and are going to view you as more of a risk than someone with a long, well established line of credit.

Also, it reduces the amount of credit that you have available. That seems like a smart thing to do, right? Not in the eyes of the credit scoring companies. They want to see that you have charged no more than 30 percent of your credit limit (for a perfect credit score).

Okay, so how about never charging anything? That should be a smart money move, right?

Again, what’s good for you and your wallet and your budget is not necessarily good in the eyes of the credit scoring company.  If you never charge anything – they don’t know what kind of credit risk you are. The ideal solution is to charge, but to pay off your balance every month, on time. Or at least pay off most of your balance.

Okay, so if charging nothing is bad, then you should charge a lot, right? Only if you can pay off most of it and if you don’t charge too close to your credit limit. If you have a $10,000 credit limit but have charged $9,000, this will severely hurt your credit score.

The best thing to do to get a good credit score is have a couple of credit cards that you pay off every month, on time, and that you do not close. Let those credit cards age, keep your balance low, pay your bills early or on time, and you will be the golden child in the eyes of credit card companies.