The Secrets of Successful Credit Management
The most common question that we see at Ask Mr. Credit Card is simple. People want to know, “How can I raise my credit score?” Most of them are looking for a quick fix; they need a loan, or want to open up a rewards card, but they know their score is too low.
I am always sad when I have to tell them that there really are no quick fixes. The only way to have an excellent credit score is to successfully manage your credit over time. So, today I am very pleased to be able to share with you the top 5 secrets of successful credit management. If you take these secrets to heart, and follow them to the letter, then you will literally have lenders rolling out the red carpet for you – no matter what the economy is doing.
1. Pay your bills on time – There is no way around it. Late payments are damaging to your credit score. Some credit card companies have gotten very sneaky lately. They are putting “time deadlines” as well as “date deadlines” onto your payments. For example, your payment might be due precisely at 12:00pm on the 15th of each month. If you pay at 12:01pm, then your payment is late.
The best way to protect yourself from this practice is to set up an automatic payment schedule. At the very least make sure that you mark your due dates on a calendar. Some companies also take 2-3 days to process and post your payment after you have sent them in. If you can get into the habit of paying your credit cards at least a week before the due dates, you can avoid all the red tape and protect your credit score. Your payment history is 35% of your credit score.
2. Keep Your Balances Low – The amount of credit you have available to borrow vs. the amount of credit you have already borrowed is known as your debt-to-credit ratio. Your debt-to-credit ratio makes up 30% of your FICO score.
When I was little, my parents used to tell me, “Just pay your bills on time, and you will never have to worry about your credit score.” Well, sadly this just isn’t true. Yes, it is important to pay your bills on time, but it is just as important to keep the balances on your cards as low as possible. People who have the best credit (over 750 credit score) on average use only 7% of their available credit.
3. Do not close out your old credit card accounts – Unless you are facing high yearly fees, then it is always in your best interest to leave your credit card accounts open. If you are afraid that you are going to charge the card back up, then just cut the card up, and leave the account open.
Closing out unused credit card accounts hurts your score in a couple different ways. It lowers the average age of your credit card accounts (15% of your score) and it lowers your debt to credit ratio (30% of your score.)
4. Regularly call your credit card company and have your fees removed – No matter how well you manage your credit there will probably come a time where you make a late payment, or go over the limit. Here is the biggest secret to successful credit management, and it’s the one the credit card companies don’t want you to know about – You can call and have all of your fees removed, request to lower your APR, have membership fees removed – everything.
Every single credit card company has a policy for handling these types of requests. Some of them will work with you more than others, but all you have to do is ask. I have personally had over $500 of interest, and fees removed off of my cards. Just be persistent. If you want your APR lowered, and your company will not work with you, then ask to talk to a manager. Tell them you have had a very attractive balance transfer offer and you want to give them the chance to keep your business.
Always remember that this is your money, and your debt that we are talking about – The person on the other end of the phone will never care as much about it as you do, so be firm, polite and persistent. You will be able to get those fees removed, and that interest rate reduced. You can also consider upgrading your credit card, or having them raise your limit.
5. Use your reward points, and do not carry a balance on a rewards credit card – The credit card companies are sitting pretty because they know that thousands upon thousands of reward points go unused every year. If you have a rewards card that you are not redeeming your points on, then you may want to consider switching to one that offers different rewards, or cash back.
Carrying a balance on a rewards credit card is also a terrible thing to do. Rewards credit cards typically have higher interest rates than non-rewards cards. So if you catch yourself carrying a balance from month to month, it makes more sense to open up a low interest credit card instead.
6. Do not ever take out a cash advance if you carry a balance – Cash advances are always charged a higher rate of interest – sometimes as high as 30%! Cash advances are also the last thing your payment is applied to. This means that if you carry a balance you could be paying 30% on that cash advance for years to come.
Also keep in mind that FICO is very forgiving. What you are doing right now with your credit cards weighs more heavily that what you have done in the past. So even if you have mismanaged your credit up till now, you can start over and begin rebuilding your credit score any time that you want to.
*Photo from citizensagainstminimumpurchase.com
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