Credit Advice – Separating Truth From Falsehoods
Everyone likes to give advice, but some of it will do you more harm than good. And, some advice is good or bad depending upon whether you are trying to eliminate debt or build your credit scores.
Consolidating your debt:
Some advisors will tell you to move all your credit card debt to a card that has a low interest rate “Until paid in full.”
That’s good advice, but only if you can move all your debt to that card without exceeding 50% of the card’s credit limit. Otherwise, its’ bad advice because it will harm your credit scores.
This is true even if it leaves you with a few other credit cards with zero balances. I know, that doesn’t make sense… you still have the same amount of credit available and still owe the same amount, but that’s the way scores are calculated. No one card should have over 50% of it’s limit in use – and staying under 30% is better.
However, if you know you won’t be needing new credit in the near future and moving your debt to a low interest credit card will allow you to get rid of your debt faster, then it’s good advice.
Closing accounts:
Another advisor might tell you to close accounts that you aren’t using, or close accounts with high interest. But that’s bad advice, unless you lack self-control and would feel that you had to use that available credit to put yourself farther in debt.
When it comes to building high credit scores, the more credit you have that is available but unused the better. And the older your accounts, the better. Your history of credit use is a large portion of your score. So keep those old cards and use them just often enough to prevent the card issuer from closing them for non-use. Pay the bill in full when it arrives and the high interest rate won’t be a factor.
Paying down balances:
If your debt is spread among many cards, most advisors will tell you to pay down the high interest balances first. But that’s only true if you’ve used about the same amount of your available credit on each card. If you’re working for better credit scores, pay down the highest balances first.
Checking your credit report:
When you’re shopping for a car or furniture, any credit advisor will tell you to wait until you’ve made a firm buying decision before allowing the merchant to check your credit. And don’t just tell them not to check – refuse to give them the opportunity by refusing to disclose your Social Security number until you’re ready.
This is because multiple inquiries on your credit report will lower your scores.
But there are 2 exceptions: Mortgage loans and checking your own credit.
When you shop for a mortgage loan the lender needs to know your scores in order to determine the mortgage interest rate they’ll offer you. And, since different loan companies offer different products, shopping for that loan is a smart move.
Those who compile credit scores realize this fact, so as long as your inquiries are grouped within a short period of time, multiple inquiries will count as only one.
Finally, checking your own scores not only does not damage your scores, it’s the smartest way to manage your credit.
By checking often you’ll be better equipped to make necessary changes, and you’ll be alerted quickly to errors on your report and/or signs of identity theft.
