Top questions regarding credit score
The number one question I see regarding credit score pertains to credit cards. The question that is always asked is if I open up a new credit card will my credit score go down? On the other hand, if I pay off a credit card , should I close that credit card account.
The bottom line is you don’t want to utilize more than approximately 30% of your credit line or limit. Also, if you have more than one credit card, you don’t want to utilize more than 30% of the credit line of all of your credit cards. If you have three credit cards , each with $1000 credit limit , and you have $200 charged on each credit card, you have a total credit line of $3000 , and you have $600 in debt. In this case, you are utilizing 20% of your credit line. This will positively affect your credit score. However, if you close one of those credit cards, and you still have $600 in debt, now you’re utilizing over 30% of your credit line. Because your total credit limit is now only $2000 , and you have $600 in credit card debt, so closing one of your credit card accounts would actually lower your score.
Opening a new credit card will usually not affect your score in a negative way, due to the fact that your credit utilization will probably be higher because you will have a higher credit limit. Some factors may apply here. Those being longevity of the credit history, and the fact that an inquiry was obtained to extend you credit.
The major factors that lower credit scores are late payments, lower credit lines, link the credit history, a high number of inquiries, and any bankruptcy, collection, or foreclosure accounts.
The major factors that raise your credit score paying your monthly payments on time, having a long history of payments on your accounts, having a debt to credit limit ratio of less than 30%, small amounts of inquiries, and a mortgage or auto loan.
I recommend that everybody obtain a free copy of their credit report plus score. The links below point to 3 of the best credit reporting and scoring companies.
Equifax Credit Watch? Gold with 3-in-1 Monitoring