How more credit card should you apply for to boost your credit score?
There is no given number of a credit card; Ethan Dornhelm, vice president of FICO Scores and predictive analysis, answered.
Your credit score is the major determinant of your interest rate in the case of the loan and even qualifies or disqualifies you for one. You are either scored higher or lower based on the information gotten from your payment history. Some of the most considered information is- how regular you apply for credit, your age of credit history, your type of credit and how much you owe.
How you manage your account is more important to the FICO Score than the number of accounts you have; says Dornhelm. What really counts in credit score is if a cardholder pays his bill as scheduled and maintains a low balance. These are the major boosters of the FICO score.
According to Dornhelm, the resent analysis revealed that people with excellent credit score; that is between 750-800 range has a minimum of three cards. If you calculate both active and inactive accounts, you will be counting about six accounts per person. This analysis was done using the accounts of customers with amazing credit score.
The number of accounts you own affects your score. Though in a less significant way. It also impacts on your earnings with different credit card rewards. Thus, before you proceed to get a new card, consider the following points below.
Applying for a new card can boost your credit score:
Signing up for a new card is yet another great way of boosting your credit score. With a new card, you spend more but still maintains an average utilization ratio. According to Dornhelm, the lower your balance compared to your total credit limit, the better it is with your score.
The recommended utilization ratio is below 30%. To do the Math, have your monthly spending and your balances in all your cards summed up. Then, divide whichever figure you get by the sum of your limits. Let’s take these figures for example. You are carrying a balance of $200 with a credit limit of $1,000.From the calculation, your utilization ratio will be 20%.
After this, if your utilization ratio is too high, then consider getting a new card to increase your total credit limit; thereby lowering your utilization ratio. However, you should maintain reasonable spending.
Do not close old accounts:
Again, Dornhelm cautioned against closing old accounts immediately after getting a new card. According to him, doing so lowers the average age of the account and takes some of the available credit away. Its impact on the account is usually immediate.
Even in a situation where an inactive card has an annual fee and worth closing so as to save money, there are ways around it. You can demand that the card is converted to one without an annual fee. This maintains the age on your credit report. Also, you can ask the credit issuers to waive the fee. This way, you can keep your credit score.; John Ganotis, the founder of CreditCardInsider.Com, tells CNBC Make It.
A new card can offer many benefits:
According to Ganotis, you can use a card that earns more in certain areas but uses another in other areas. For example, you can get a card that has an offer on groceries or gas and still another for cashback on purchases. Savvy spenders can use different cards to earn different rewards.
If you plan on getting a new card, go for one that offers perks and bonuses to make up for your old cards. Make sure your rewards are worth the annual fee you pay. Take advantage of the information you have and apply for one you’re qualified for and not one you want. Be careful not to incur credit injury.
If you’re currently happy with your credit score and rewards, there’s no sense in jeopardizing your credit status by applying for a new credit card.