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Money Management

Can the Balance I Carry On Each Credit Card Raise My Credit Scores?

Mark Goldstein
11/1/2008
Untitled Document

The balance that you have on each credit card affects your credit scores and there is something that you can do to raise your scores.

The first step is to know what your credit limit is on each card. Next, simply divide what you owe on each card by the limit on each card and if this percentage is 25 to 30 percent you are in a very good position. Lower is not necessary; just work on lowering other cards down to these ratios.

Pay down the balances that are closest to your credit limits as your first course of action.

Example:

Credit limit is $10,000 and you owe $6,000. 6000/10000 = 60%. If you have $3,000 to buy down this balance to $3,000 or 30 percent, it will raise your credit scores at all three bureaus.

Many consumers think that they should pay off their credit cards with the highest interest rate first or pay off one card’s balance when they get a tax return or a cash bonus from work. If your goal is to raise your credit score, pay down the balances that are closest to your credit limits as your first course of action.

Real Life Example:

I spoke with Fred in San Diego this past week. He had read my article on ways to raise your credit score on my website [see contact info below].

Fred has credit cards with the following balances and limits and he had $10,000 or so to “pay down” his cards. He wanted to know if I had any advice for him.

Fred’s Situation:

Card #1: $12,000 balance, $40,000 limit (30% of limit)

Card #2: $10,000 balance, $20,000 limit (50% of limit)

Card #3: $8,000 balance, $20,000 limit (40% of limit)

Card #4: $40,000 balance, $10,000 limit (25% of limit)

My suggestion was to buy down Card #1 by $2,000, Card #2 by $5,000, Card #3 by $3,000, and Card #4 by $0.

By utilizing this strategy, Fred was able to maximize his investment and the result will be higher credit scores than if he had just paid off the highest interest rate card by that same $10,000.

Fred’s Ratios After Spreading Around His $10,000:

Card #1: 25%, Card #2: 25%, Card #3: 25%, Card #4: 25%

I guess he got “more cluck for his buck” as KFC used to say in an old commercial.

If you know you will be paying off your credit card balances this month, but you need to charge more for an important reason, spread your charges to keep your percentages below 30 percent so your credit scores won’t be lowered by adding too many charges to any one card.


Mark Goldstein is a Financial Service Coordinator helping people with refis
and can be reached at (951) 582-4526 or by email at mgoldstein@directloanamerica.com.

Print Date: 2/28/2020
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