Use Credit Cards Responsibly and Increase Credit Score

The last time I checked my credit score was last June and it was 699, largely due to the more than $50,000 0% balance transfers I put on four cards. At that time, I used FICO’s Score Simulator to estimate what my score will be if I pay off all the balances by the end of 2006 when all the BT offers expire. The simulator told me my score will be between 750 and 770.

fico6.jpgOut of curiosity, I bought my FICO score from Equifax yesterday, though I won’t be shopping for a loan any time soon, nor do I have zero BT balance (one I got from Discover expires in June). I want to see what carrying 30+% balance to the total credit limits could really do to my score and whether my recent Citi PremierPass application has any negative impact.

769!

Not perfect, but I consider it very good (and the simulator seems to be quite accurate). With this score, FICO says I have a delinquency rate of 2% (meaning a very low risk of of missing payments or defaulting on a loan) and I could possibly get the most favorable rate for scores in the 760 to 850 range. The summary of my credit cards looks like this:

  • Total number of accounts: 39
  • Number of credit cards in good standing: 18
  • Number of accounts that are negative: 0
  • Number of accounts with balances: 4
  • Total credit limits: $191,850
  • Balance to credit limits ratio: 7%
  • Oldest account still active: 1998
  • Newest account: 2007

The credit report cited the following positive factors:

  • No late payments reported on your credit accounts
  • A low proportion of balances to credit limits on your revolving accounts:
  • A relatively long credit history: nearly 10 years
  • Few recently opened accounts

And there’s only one negative factors:

  • The time since the most recent account opening is very recent

which refers to the Discover card I applied last June (the Citi PremierPass didn’t show up yet). Even though I have so many cards, only four of them are active, making managing the payments a lot easier. The four cards that carry balances are: Citi UPromise, MBNA Fidelity 529 Reward, AMEX Costco TrueEarning, and Discover Miles (0% BT). Except the Fidelity and Costco cards, most cards I opened in recent years are for 0% BT only and I never used them for purchases.

  • Citi UPromise (which is now Bank of America UPromise): The card is linked to UPromise 529 program and earns me 1% cashback on every purchase (higher rate for some other qualified purchases). This card has earned me $317 since 2004. The cashbacks are invested in UPromise 529 account managed by Vanguard.
  • MBNA Fidelity 529 Reward: My everyday card earns me 2% cashbak on every purchase and is linked to Fidelity UNIQUE college savings plan. Too bad the card has recently been replaced by an AMEX card which pays 1.5% back. Since early 2005, I have earned $134 cashback.
  • AMEX Costco TrueEarning: I only use this card to shop at Costco and with my Executive membership, I can get 3% cashback from all the purchases made at Costco.

Once in a while, I used Chase Amazon card to make purchases on Amazon.com; otherwise Citi UPromise is the only card I use for online shopping, despite the $13K limit.

There are lots of talks recently on the use (or not use) of credit cards and some professional writers suggest getting ride of credit card as one of the debt reduction techniques.

Sure, if one’s already in credit card debt (not those 0% BT though), there’s no reason to keep using the card. But, personally, I have hard time drawing any connection between debts and credit card usage. I am not a fan of debit card and never used one. And whenever possible, I use my credit cards to charge purchase, even if it’s only a few bucks. Why would I be necessarily in trouble by using credit cards if I pay whatever balance in full every month and make sure the payments hit the cards before the deadline? It all comes to responsibility. Be responsible for what I buy with the cards and be responsible for how I pay the cards, then I am not worry a bit of swiping the plastic. Sure, bad things could happen and I could be hit by somebody though I drive very carefully. That’s just life and I am not going to give up driving just because accidents could happen.

For me, I will keep using my credit cards for every purchase I make, collecting cashbacks no matter how tiny they are, paying off balances in full every month, applying for new cards to get a good deal, and playing the 0% balance transfer game whenever possible. And I am not worried about my credit score!

BTW, myFICO has quietly risen the charges on credit score from $14.95 last June to $15.95, the amount I paid for this purchase.

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11 Responses to “Use Credit Cards Responsibly and Increase Credit Score”

  1. moneymonk |  Feb 07, 2007 at 4:11 pm

    769 ! very good Sun. I think it’s almost impossible to have a perfect FICO score. Because it changing sometimes almost daily. Just by opening a new account or having a creditor pull your credit can sometime make a FICO score bounce down.

    To me above 725, anyone should get a good rate on a loan. CC’s are okay to use, but as you said use them responsible!

  2. The Digerati Life |  Feb 08, 2007 at 3:01 am

    Wow! you’re in really good shape! :) You really got your finances going gangbusters here. I also have a Upromise 529 which I am very happy with. My husband and I both have cards so we double the rewards. The account has grown very well and the best things is how automated it is! I can’t recall my credit score now but I think it’s also in the 700′s…. Great post!

  3. The Sun |  Feb 08, 2007 at 12:56 pm

    A perfect score certainly looks nice, but when it comes rates that based on the credit score, it will make no difference at certain level. That being said, I still like to see my score goes above 800. That would be cool!

    I used to use UPromise card a lot until I got the Fidelity card which pays more cashback than the UPromise card. But whenever I shop online, I check the online shopping at Upromise first see if I can find the retailer on their list. That could give me both the rewards from the card and from shopping through Upromise. It’s always good to see the rewards add up and get automatically invested.

  4. Jonathan C |  Mar 22, 2007 at 11:36 am

    Sun,

    For you and me, the issue isn’t about whether we carry a credit card balance. That is simply a no-brainer. What interests me is how my spending habits *do* change when I (or my wife) use credit. We spend more. Not so much as to get into debt, it just makes it more difficult to meet our savings goals.

    Thus, even despite all the cash-back rewards (2%, 5%, whatever), I find that we do better financially using cash only. Of course, I take out the occasional 0% balance transfer offer to make some interest income on the side… :)

    Jonathan

  5. The Sun |  Mar 22, 2007 at 11:36 pm

    Jonathan: While I agree that the easy access of credit cards makes impulse shopping a lot easier, I don’t have any comparison myself between shopping with cards and with cash since I almost charge everything with cards. It’s true that we spent money on stuff that we don’t use a lot, we try not to make our purchasing decision based on how easy we can pay the bill. I am interested in how you figured out you actually spent more when using credit cards.

  6. Rebecca |  May 03, 2007 at 11:25 am

    Sun: Very nice! Oh, how those banks and credit card providers hate you now. If everyone who uses a credit card learns to use it to his advantage the way you do, all those cash backs, and no annual fees, and low APRs that a Citi MasterCard or Chase business card or whatever offers would surely vanish. But while “big spenders” are still out there, then those benefits are staying.

    Jonathan: I guess we tend to spend more when using credit cards because we temporarily forget the value of real money, simply because it’s not there and what we’re seeing is plastic. We forget that $100 is equivalent to x number of hours of work. With a card it’s just one swipe.