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How do Credit Card Balances impact your Credit Score

What should I do with my credit card balances

Quiz Question - Which situation is best for your FICO score:

1. Using my one credit card, each month, for a tiny amount of $5 then paying it off to $0 immediately after receiving the bill?

2. Using all three of my credit cards each month and keeping them all as close to 30% of the limit as I can?

3. Maxing out my one credit card out each month,

then paying it off completely when the bill arrives?

4. Rotating my three credit cards around; keeping only

one of them at 50% utilization at any given time?

5. Owning two credit cards and only using them

in emergencies?

6. Going to the bar and spending all of my money because the FICO algorithms are irritating and continue to

cause me high interest rates?

*Just in case you decided to look at this line to find the answer before figuring it out; it might be (c), could be (d), possibly (b), perhaps (a), but definitely not (f). Choosing option (e) is terrible because having revolving accounts and not ever using them is the same as not having any in the first place. The problem with (d) is that a 50% utilization - though it isn’t awful - is higher than where you want to be. Rotating your cards monthly if you have multiple cards is important, though. Therefore, (d) takes 2nd place. Option (c) is one of the worst options only because of how the bureaus/creditors have set up their system. You may think that you’re a financial wizard - maxing out your card then having the funds and responsibility to pay it off - but the creditors report you to the bureaus before they send you the bill. What generally happens, therefore, is that your credit report shows that you are maxed out at any given time instead of paid off. Option (b) isn’t terrible but certainly not ideal. At a 30% utilization you aren’t losing a lot of points but you are still losing a few. In addition if all of your revolving accounts are being utilized at once, you are penalized for "multiple revolving balances."

I have been analyzing credit for 30+ years for folks who may be just miss on a credit score to qualify for a low or no down payment home loan. If you ar a First Time Home Buyer or maybe you lost a Home in the past I would like to assist you.

Get in touch with me through my website.

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