imagesCAIX3Q01In your credit reports credit card accounts are referred to as ‘revolving credit’. Because your credit score is calculated independent of your income, your use of revolving credit is very important. Keeping your balance 30% or less of your credit limit and paying those accounts to zero as often as possible has a big impact in building your score. This projects the image that you have your finances under control.

When you receive your credit card statement, it will state what you need to pay. This is actually the MINIMUM amount you must pay. If you pay only this amount, unless the balance is the minimum payment due, you are telling the computer that you had no extra money available to pay toward the card balance. In essence, you are stating ‘I wish I could pay more, however this is all the money I have available’. The activity on this account might have a neutral effect on the score, but in most cases will make the score drop.

Now take the scenario of not paying more than the minimum on your card and using the card to its limit. If the balance on the credit card stays near the limit, your scores will be adversely affected … you have told the computer you are strapped for money! That is why this action lowers your scores.

Most credit card companies report to all three major credit reporting agencies (CRA), which are Equifax, Experian, and Trans Union, however some do not. Therefore, verify the company reports to all three CRA. If this account is your only active account, and is reported to less than all three, you won’t build all three scores.

It is a great idea to leave your card idle for a few months, however if for too long, you run the risk of having your card and account closed by the lender due to inactivity. The result will be a lower available revolving credit limit.

Because a higher available limit, which is the amount of credit you can use on your card, is better, it doesn’t hurt to ask for an increase in your limit as long as the card company doesn’t run a hard inquiry. Most companies do not. Ask before you submit a request because too many hard inquiries will make you look like you are needy for credit and will lower your score (a general guideline is that every inquiry hits your score about five points).

To obtain a higher credit limit, you need to act like you want it, but not like you need it.Request a credit limit increase that is high, but not high enough to raise concerns. The worst that can happen is that they might come back with a lower approved amount than what you had asked for.

Some credit card companies, such as Capital One, have cards that issue $500-$1500 limit cards and nothing more. For our clients who are establishing or rebuilding their credit, Capital One is one company we recommend. They are more likely to approve you than many other creditors. A secured card might be all you can obtain initially.

If you have cards that do not approve your limit increase, apply for a new card. We have found our clients’ scores rise quicker if they have at least two revolving accounts. If you wish to add one or two accounts to your portfolio, apply for three on the same day. If you are approved for all three, your available credit is that much higher.

Hopefully, you are able to obtain several cards with impressive limits, however BEWARE, you must use them wisely! If the balances reach the limit and you are unable to pay them down in a timely manner, your scores will more than likely drop. If your overall credit report reflects you are in trouble, they might lower your limit. And, some companies have lowered limits across the board, no matter what the consumer’s credit reports reflect. What if there is an increase in the interest rate? You might apply for an installment loan and can’t qualify, or can’t qualify for the best rates because of your credit card debt. Having a high limit, paying to zero, or close to zero as often as possible has a significant impact on your scores … it shows restraint, control and financial health.