- THE DEPARTED: If It Looks Like a Rat, It Probably Is
“If you had any idea of what we do, we would not be good at what we do, now would we?”
“’This quote sounds like the guys who created credit score algorithms,’ says Huettner, who acknowledges that the ways to improve your score are often opposite of what you might think.” Below are some examples:
- DO Open a New Account:
- “If you don’t have much credit, add some. You need breadth and depth – at least three cards open for at least two years. Boost your score further – get approved for a limit that’s double or triple what you plan to charge on the card.”
- DO Close Accounts:
- “You don’t need a charge card for every store at the mall. Open accounts will show you can manage credit, but too many cards (more than 10 or 15) are suspect.”
- DO Use a Credit Card:
- “Make a charge to one or two cards twice a year. Pay them immediately. Demonstrate that you can manage your credit.”
- DON’T use a Credit Card
- “Having unused cards helps your utilization rate, showing you can have access to credit and not use it.”
Further, Algazi says, “It’s never the amount of money you owe that takes your credit score. It’s always your debt utilization ratio—the amount of your overall available credit you’ve used up. The higher your ratio, the lower your score. The ratio gives a general idea of the leverage of the individual along with the potential risks the individual faces in terms of debt load.” The article further clarifies the idea of the debt utilization ratio with the following example:
- “A $10,000 combined credit limit on three cards and $7,000 in credit card debt means your utilization ratio is a high 70 percent”
While Credit Card companies won’t break your legs, but if you misuse your credit cards, they will run right to the credit bureaus and ruin your financial reputation.
