Sunday, October 16, 2005

Managing Multiple Credit Cards

I've found so many interesting articles today, that I just had to keep on sharing.

Here's one from Jack Guttentag of Inman News titled "Golden Rules for Managing Multiple Credit Cards."

I'm just going to mention some of the main ideas of the article. That way you don't have to read the whole thing if you're feeling a bit rushed.
1. deliquencies in payments stay on your credit report of seven years
2. keep the ratio of card balance to maximum balance low
3. keep older cards rather than newer ones
4. try to have no more than 4-5 active cards

Keep on reading below if you want to know more!

Question: Two years ago I had terrible credit, and you steered me to a credit card company that would give me a card. Now I have three cards, and my credit has improved, but not enough. How do I manage my cards to earn the best possible credit score?

Answer: Managing credit cards is more complicated than managing a mortgage or auto loan because you have multiple debts rather than just one. The number of cards can vary, balances can be increased or paid down, balances can be shifted between cards, new cards can be opened, and existing cards can be closed.

Any such change may affect your credit score. Some guidelines to follow, in order of importance:

Payment history: Payments made on time raise the credit score, while delinquent payments reduce it. Most cardholders understand this, but many also believe that the reduction in credit score caused by a delinquency is reversed when the card becomes current. This is not the case. Eliminating the delinquency merely prevents a further hit to the score. Delinquencies stay on your record for seven years, although their force will weaken over time.

Ratio of card balance to maximum balance: This is the second most important component of your credit score, and if your credit history is short, it can be the most important. The outstanding debt on each of your cards is compared with the maximum debt that can be charged on that card. For example, if the balance on a card is $2,000 and the maximum balance is $5,000, the utilization rate is 40%. The lower the utilization rate, the higher your credit score. High ratios are taken to mean that the borrower is living closer to the edge.

Some experts advise that it is better to have about the same utilization ratio across all your cards, rather than have some high and some low.

I see no reason why the distribution of balances across different cards should matter. A cardholder can reduce the utilization ratio by reducing the balance, and also by increasing the maximum balance. If a borrower has had a good payment record, the maximum can often be increased simply by asking.

Age of cards: Think old over new. The card in use for 15 years is evidence of financial stability, whereas the card taken out last week could mean the borrower is in trouble.

Number of cards: It is better to have no more than four or five active cards, but if you have 12, don't worry about it. If you reduce the number of cards, retain the older cards and cancel the newer ones.

Questions or comments for Jack Guttentag can be left at

And if you have any questions for me, I'm always around, so drop me a line!

~Tina Jan~
Coldwell Banker Kivett-Teeters
1655 E. Sixth St.
Beaumont, CA 92223
Work: 951-845-5520 Ext. 105
Fax: 951-845-4916
Cell: 909-446-2666
Toll-Free: 1-877-TINAJAN

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