The Right Way to Manage Your Credit Cards

Managing Your Credit Cards While one in seven Americans has at least 10 credit cards, the average is four, according to a report from Experian. Usage on credit cards has dropped dramatically in the last two years as financially constrained consumers have reduced spending and begun paying off debt. The national average interest rate on credit cards as of November 2009 is 12.64%, which has declined 0.45% from six months earlier.

As a member of the Top 5 in Real Estate Network®, I know that mortgage-seeking clients are always asking for advice on how they can improve their credit profile, such as the number of credit cards they should have. According to the credit experts at ApprovalGuard.com, however, it’s not just the number of credit cards you have, but how you use and manage those cards.

Here are some critical tips for managing your credit cards in order to maximize your credit profile:

Use your credit cards regularly, but in small amounts, never exceeding 30% of your entire credit line. For example, if your card limit is $4,000, set a self-imposed limit to keep your balance at $1,200.
Even if you pay your bills on time, coming close to your full balance each month affects your credit score negatively. Regularly maxing out your card limit is a bad habit in the eyes of credit-rating firms. It’s better to spread your credit charges out over two or three cards, keeping each balance at or below 30% of your total credit line.
Don’t get rid of old cards even if they have higher interest rates than ones you may get on newer cards. Credit rating firms like to see a well-established history, so utilize your old cards every so often for small purchases.
On the flip side, avoid getting new cards, if possible. When you add a new credit card, your credit score will likely suffer a temporary drop until you have established a payment history with that card.

Well-managed credit cards will assist you in establishing a stronger credit profile and better credit scores that can potentially lead to lower interest rates and terms when applying for home loans. For more information on shoring up your credit profile, please contact me.