Do you know how credit cards affect your FICO score? Even if you make your payments on time you could still be loosing points each month. Click Play To Watch or Read Video Text Below.
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Money Saving Minute #007: How Credit Cards Affect Your Credit Scores and How To Pay Them Off (Text from video).
Credit cards can be your credit score’s best friend or worst enemy. When used properly credit cards will give your scores a real boost. But what is the proper way of using a credit card? First, Credits cards should be used as a convenience or a way of earning cash back and rewards. Credit cards should not be used as a crutch or treated as an extension of your buying power.
Second guideline of credit cards is pay them off each month. If you keep a rolling balance you are paying interest and wiping out all of the savings that your reward points would have given you.
Third, if you do keep a rolling balance keep the balance under 30% of the available credit line. 0 to 10% is best, up to 30% is okay but more than 30% may actually start costing you points. Your utilization ratio or the amount you owe in comparison to the amount of the credit line, is 30% of your credit score.
The fourth guideline, is the obvious one – pay the bill on time. Even if it means only making the minimum payment, make sure that you make that payment prior to the due date. Payment history is 35% of your credit score and late payment stick with you.
Finally, don’t close accounts. Keeping accounts open will give you more breathing room with your utilization ratio. Also, length of credit history is for 15% of your credit score so if you close an account that you have had for a long history with you may actually hurt your score.
Now let’s talk about how to pay off credit cards. Below this video is a link to download an excel workbook called “Credit Card Calculator”.
With this workbook you can determine how long it will take to pay off a card or you can set a goal of when you would like to have the card paid off by and it will calculate how much you should be paying each month. If you have several cards that you would like to pay off work on them one at a time. Splitting up your available funds between all of your accounts will get you nowhere fast however still be sure to make the minimum payments on each account.
Choosing which card to pay off first is a matter of weighing all of the factors. You may choose to work on the account with the highest interest rate first. You may look at paying off the card with the highest balance first because you are paying more interest each month or you may look at paying off the card with the lowest balance first. Paying off the card with the lowest balance is many times the most effective because once it’s paid off you can use what was budgeted as the minimum payment for that account toward paying off the next account in line.
This has been money saving minute number zero zero seven. It’s your cash and watching the The Money Saving Minute each week will help you keep more of it. Click to the right to subscribe so you don’t miss any money saving tips and click the facebook button below to share this with your friends.
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