February 05, 2013

Credit cards can have a dramatic effect on your credit score

How you handle your credit cards really matters when it comes to your credit score. Here are some ways using plastic can raise or lower that ever-important three-digit number:

Closing credit card accounts. Closing a card you have had for a long time can push down your credit score. Why? Because when it comes to credit scores, the longer the combined length of time you have had all your credit card accounts open (and in good standing), the better.

Opening new accounts. In the same way older, established credit accounts can benefit your score, opening new accounts, such as multiple department store credit cards, can hurt it. One huge no-no, for example, is opening a new credit card account right before or during the mortgage application process.

Carrying a balance. Over the long term, carrying a credit card balance from month to month is an expensive habit. Depending on how much of a balance you carry, you could be hurting your credit score, too. Aim to keep balances at about 50 percent of your available credit limit; 25 percent or less is the ultimate goal you should shoot for. The closer your balances get to your total credit limit, the more your credit score will suffer.

So why should you care about your score anyway? Your score can affect how much you’re charged in interest for a variety of consumer loans, including mortgages, and how much you have to pay for many types of insurance. It pays to pay attention to your credit score! Want to learn more?  Check out this list of credit score do’s and don’ts for more information about how important your credit card habits are to your overall credit score.

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