Do You want to Boost Credit Scores or Get Out of Debt?
Consumers today have two separate goals when it comes to credit. Some just want to get out of debt. Others want to boost their credit scores so that when it comes time to make a major purchase, they’ll pay the lowest interest rates.
That’s why consumers should think about the consequences before taking advice from credit counselors or well-meaning friends. Good advice geared toward getting out of debt may be the direct opposite of good advice that will increase your credit scores.
The way credit scores are created can be puzzling to many. While it seems like using very little credit would make you a more credit-worthy person, the opposite is true.
Lenders want to see that you have credit and you handle it well. Thus, when credit counselors advise consumers to close out credit cards, they’re giving credit score crippling advice. The only reason a consumer should cancel a credit card is if they have no self-control and will ultimately charge it “to the max.”
Why? Because a good portion of your credit score rests on how much credit you have available compared to how much you use. Creditors like to see that you are not so desperate that you’re using all your credit.
But then comes another strange twist…Using one card to its maximum will hurt you, even if you have six others with no balance.
That’s why debt consolidation will help you get out of debt but lower your credit scores. When you receive a promotion from a credit card offering you an low interest credit card, as low as zero for the first 6 to 12 months, it may or may not be a good idea to transfer all your credit card balances to that card.
What you should do depends upon your financial goals.
If you can discipline yourself to continue paying the same amount to that one card that you’ve been paying to all cards combined, that move will obviously help you bring your debt down quickly.
However, using one card to its limit will lower your credit scores. Eventually they’ll come back up – if you maintain that discipline and use the low interest or interest-free period to reduce your balance.
Credit card companies don’t really like to carry accounts that are unused for months and years at a time. They’re earning nothing, but bearing the cost of record keeping. To offset this cost, some are now charging annual fees just for keeping an account open. The good news is that some of them will waive that fee if you use the card occasionally.
Thus, it can help your cash flow and your credit scores if you use each of your credit cards once every 2 or 3 months. To have the annual fee waived and still avoid paying interest, pay the balance in full when the statement arrives.
CreditScoreQuick.com
