In the competitive world of credit cards, each bank is trying to attract new customers by just about any means possible. Two of the primary tools they use to encourage new applicants are super-sized 21 month 0% balance transfer offers and constantly increasing sign up bonus offers. These bonus awards can be very valuable, with cardholders earning hundreds of dollars in cash – for example, the Chase Freedom $200 Visa – points, or airline miles. While some consumers focus on gaining the maximum benefit from the generous credit card offers, many are concerned that frequent applications for new credit will damage their credit score.

How New Credit Applications Affect Consumer Credit Scores

The precise formulas used to create credit scores are not released, but there is much that is known about them.  For example, 35% of a person’s FICO score is comprised of the consumer’s payment history, 30% by the amount owed, and 10% by the types of credit used. None of these factors are directly affected when a consumer applies for multiple credit cards.  The remaining factors include the consumer’s length of credit history, which makes up 15% of the score and applications for new credit which makes up the smallest portion, 10%. Continue Reading »

Credit cards are not all evil, as many people would lead you to believe.  In fact, when credit cards are used appropriately and managed well, they can actually help you increase your credit score.

Your use of credit cards, and your history of paying your debts is vital to your credit score calculation.  Since your credit score plays a role in many important areas of your life, from the interest rate you receive on financing offers to whether or not you can rent an apartment or get a job, or how much you pay for car insurance – it’s important to do everything you can to manage your credit and improve your credit score.  Here are some credit card management techniques that can help improve your credit score:

Review Credit Card Statements

As soon as you receive a credit card statement or communication from your creditor in the mail or via your email address, get in the habit of looking at it closely.  You want to ensure that you aren’t missing any changes to the policies or terms of your card, as well as ensure all transactions for purchases on your credit card were made by you. Continue Reading »

If you have had financial difficulties in the past, you may have seen your credit score drop a lot.  Since your credit score plays a large role in your life, you want to take steps to increase it.  The higher your score, the better interest rates you receive when you borrow money.  Credit scores also play a role in renting apartments, getting jobs, and in the calculation of your car insurance rates – so the higher your score, the better off you’ll be.

It’s not possible to repair your credit score overnight, but there are a number of things you can do to increase your credit score in 30 days.  The lower your score, the more time you will need to repair it – but the following tips will help you start increasing your score within 30 days:

Reduce Your Credit Card Balances

Ideally, you want to keep your revolving credit balances below 25% of your available credit line.  If you have a credit card with a credit limit of $1000, you would want to keep a balance below $250.  If you have multiple revolving credit accounts that are all utilizing more than 25% of your available credit – start paying them down as quickly as you can.  The more available credit you have, the better your score. Continue Reading »

Although I literally charge everything possible on my credit card to earn credit card rewards, when my credit card bill comes in the mail, I generally owe no more than $150. This amount, which is a small percent of my available credit and a fraction of what my family spends every month, is reported to the major credit bureaus as my outstanding debt. And my credit score reflects this.

Many, if not most people can improve their credit scores by taking the same approach I use. This is especially true for people who charge a lot, but pay their bills in full every month.  However, even if you don’t pay your bill in full every month, paying what you would otherwise pay above your minimum payment can make a difference in your credit score.

The reason why having a low balance on your monthly statement can have a big positive impact on your credit score relates to your credit utilization ratio, also known as CUR. Continue Reading »

Credit card complaints have continued their steady decline since the implementation of the CARD Act. Now that credit card companies can no longer raise rates on existing balances, the main complaints continue to revolve around credit limit cuts.  However, even though these complaints have fallen off in recent month, it appears that Baby Boomers are increasing the recipients of these cuts.

A recent visitor to Smart Balance Transfers provided some quality insights into the rationale behind credit limit cuts and why this frustrating risk management tactic may become less common in general, but more prevalent for baby boomers.  In late August, Will wrote in expressing anger over the fact that the credit limits on his five Chase credit cards were reduced from $84,000 to $31,000.  Will wasn’t angry because he was planning to charge a Lexus Rx350.  He was angry because his credit utilization ratio skyrocketed from 30% to 90% and this was likely to have a massive impact on his credit score (and it probably did, as credit utilization ratio’s account for 30% of the credit score formula).

Will was also angry because he had been a customer for 20 years and felt slighted by a bank he thought he had a good relationship with. This sentiment has been shared with me by many people who experience credit limit cuts. A lot of people are more angry about perceived slights by credit card companies they have long standing relationships with than they are about the loss of available credit. But this is a whole different issue. Continue Reading »

During 2009, credit card companies reacted to the turmoil in financial markets by slashing consumer credit lines by unprecedented amounts.  Many consumers saw credit limits reduce to a mere $100 above their outstanding balances.  This caused credit utilization ratios, a key factor in credit scoring, to shoot through the roof, dragging down credit scores to the floor. Continue Reading »

Although it seems the pace of credit limit cuts has slowed recently, they are still an issue many of us have to deal with.  The same goes for the relationship between balance transfers and credit limits.

Two helpful articles on this subject on our site include, “What to Do When Your Credit Limit is Cut,” and “How Balance Transfers Affect Credit Scores.”  If you are interested in learning more about protecting your credit score after a limit decrease or before a balance transfer, you may find these quite useful. Continue Reading »