Credit Cards and Credit Score

Tips to give your credit score an extra boost.

1. Keep the balances balanced
Maintaining a balance that's close to your limit could weigh down your credit score.
If you carry a balance on your credit card, you need to make sure the difference between your credit limit and your balance is 50 percent or less, so if your limit is $1,000, you need to keep your balance at $500 or less. Not using all of your credit is a signal to card companies that you're managing your credit properly. Keeping an even lower balance - 30 percent or less - will boost your score even more. Should your balance go over the 50 percent mark on one card, you need to focus any available financial resources on cutting the balance down, even if it means sacrificing a few daily luxuries until the credit's in check.

2. Eliminate the mistakes
One of the fastest ways to up your score is to make sure it's yours. According to a 2005 study by the Federal Trade Commission, an estimated 8.3 million Americans are victims of identity theft each year. Of those victims, 1.8 million have new credit cards, loans, or financial accounts opened in their name without their knowledge.

An easy way to prevent paying off debts you didn't incur is to keep tabs on your credit score through agencies like FreeCreditReport.com, which gives consumers one free credit report from each of the three major credit scoring agencies each year.

3. Diversify your credit
People don't realize that 10 percent of their credit score is determined by what types of credit you use.
That's determined not only by how you manage revolving debt like Visa, MasterCard, and store credit cards, but also how you handle fixed payments like your car payments or your mortgage payments over time.

Instead of putting long-term purchases on them try taking out short-term one to two-year loans in order to build a diversified credit portfolio. In addition to receiving lower interest rates and more flexible payment terms, consumers who use loans over cards also build positive credit and gain better credit terms in the future.

4. Nip it in the bud!
If you see trouble on the horizon, nip it in the bud! Making a late payment could affect you interest rate, not just on the card you're paying late on, but on all your credit cards. If you know you're going to have trouble making payments, get in touch with your lender and have a discussion about it. We are hearing more and more from our counselors that lenders are willing to look at whether you can put together a different payment plan. Since even one late payment could lower your credit score, preventing disaster before it happens can protect your credit for years to come.