What to do with those old credit cards that could help your credit scores?

Credit cards and credit scoresWhen you are looking to raise your credit scores quickly, showing some love to that old card in the back of your wallet could get the points you want!

Credit card usage and their affect on credit scores is the most misunderstood credit reporting topic among Americans and often we will hear someone say things that will most of the time negatively affect scores a lot such as:

  • “I just closed all of my credit cards”
  • “I just lowered my credit limits on all of my cards”
  • “I don’t have credit cards because they will hurt my credit”
  • “I forgot all about my XXXX credit card and just keep it in a drawer without using it”

So this article covers an area about credit scoring that many don’t think about and that is using older credit cards in a way that will increase scores which will help you get better mortgage, auto, insurance, and other rates.  Check out these ideas for your credit cards you haven’t used in a long time:

Charge $20 once, then when you get the bill pay it off in full and on-time, and every once in a while repeat these steps.

THE REASON:  If you have a credit card that hasn’t been used in a long time, the Date of Last Activity (DLA) is going to be old as well.  Mortgage lenders are looking to see enough recent and good credit history on borrower credit reports so if the DLA is 1 – 2 years ago, you don’t have proof of paying on-time lately.  If you charge something now, the DLA will then show history up through that date and will fill in that gap.  Plus you didn’t have to go into debt to show a great credit history!

If your credit card company for a card you haven’t used in a while increases your credit limit, take it.

THE REASON:  30% of your credit score is balance compared to credit limits as a percentage.  When your limits are higher, if you have a balance it will be a lower percentage of the limits so your scores will be higher.  Yes the credit card company is raising your credit limit in hopes that you will charge more, BUT make sure that just because you have a higher limit, you should exercise caution in your charges so that you don’t overspend! Then it is a win for you in having a higher limit and it helps in giving you a higher score.

Don’t close that old credit card unless you have 2 – 3 other credit cards which report to all 3 credit bureaus and have been open a very long time.

THE REASON:  Part of your credit score is how long you have had open accounts and account history, so other than a mortgage which technically you could have up to 30 years assuming it isn’t transferred, a credit card is what you can have for the longest period of time.  The so-called magic number of cards many say you should have for optimal scores is 2 – 3 and keep them open a very long time.  If you don’t have 2 – 3 other cards open for a long time, wait until they have been open a very long time before closing any extra cards.

If you only use a department store charge card to purchase your winter or spring wardrobe, be mindful of the amount you charge compared to the credit limit if there is a chance you would have your credit report pulled soon.

THE REASON:  Often a department store card will have a smaller credit limit, so if you charge a lot during one billing period then it could lower your credit scores until you have paid it down or off.  For instance, if your limit is $500 and you charge $450, then when that balance reports to the bureaus, you will owe 90% of that limit.  This could affect your scores and the more limited credit you have, the more it would affect you.  So just be careful of charging on cards before a major purchase (especially on real estate) so you don’t experience a credit score dip at the wrong time.

If you are not sure if your credit will qualify for a home purchase, contact us today to find out.  Even if you don’t qualify at that time, our loan officers can provide you with a detailed plan to get to that point of qualification.  We hope that you find this article helpful and here are some other articles you may like:

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Written By: Russell Smith