With the implementation of the CARD act, the rules for having a good credit score have changed.
While many of the rules from the past, such as make your payments on time of course still apply; other things are now coming into play that can affect your credit score.
For example, in the past it was not a problem to not use your credit card for a month or two or even longer. Now, however, many credit card issuers are charging a fee or inactivity. So now it costs you to have a credit card but not use it.
And if you cancel it your credit score can take a hit.
A recent article on Yahoo finance offers some advice for keeping a high credit score that seems completely counterintuitive because it is almost in direct opposition to what was recommended in the past. And I suppose if your only goal in life is to get a high credit score then it may be good advice but I have a hard time believing that any of this is good advice if you are looking for long-term financial security. Kind of like the ?driving a Jaguar but not being able to pay for the gas”, ala Dave Ramsey in Financial Peace.
For example, the first rule is ?Open More Credit Cards?. Okay.
In the past, experts warned that having to many credit cards was detrimental to your credit score. And the truth is that if you have too many credit cards you do have the risk and temptation to overextend yourself. Add on to that the fact of these inactivity fees and it makes you wonder. The advice is to open more credit cards to improve your credit utilization but from a pure budgetary standpoint, rather than just a building credit standpoint?.isn?t it going to cost you more to have more credit cards? Even if you pay them off every month? If you don?t happen to use one and you get an inactivity fee, isn?t that money that should go elsewhere in a healthy budget? The credit card companies haven?t done enough for me to justify my hard-earned dollars paying to keep them in business!
Rule number 2 is Max out (some of) your credit cards. Okay.
Some credit cards don?t report limits to the credit bureaus so these cards do not count towards your utilization percentages. So max out a card to improve your utilization.
I would say ?are you kidding me?? but no kidding, that is what it says!
Rule 3 is don?t ask for a lower APR. Okay.
Yep, if your APR is too high, don?t ask for it to be lower because it may trigger an account review and cut your credit limit or even hike up your interest rate. In this case, it may be wise to have multiple credit cards so you can transfer around balances.
Rule 4 is don?t pay off a closed credit card. Okay.
FICO will count the credit limits on a closed account towards utilization ratios if there is balance. If you don?t have a balance then it won?t help you. Of course, you won?t owe the money anymore but what do you really want??a decent lifestyle, financial security, peace of mind, a budget with extra money, lack of worry over debts,….. or a high credit score? I mean really?..
And Rule 5 is to mix up business and personal.
Not sure what that will do when it comes time to itemize for taxes but the CARD act doesn?t apply to business credit cards so use your personal credit card for business purposes. You may be damned if you do it though as the higher expenses may make it appear that you are overextended and apparently now some business credit card accounts are reporting to the credit bureaus. And damned if you don?t because the CARD act doesn?t apply??.huh? and that is a good thing because…. why?
The problem all around is that the majority of people don?t just want a high credit score but rather financial stability and all that it entails. And there is more to financial stability and financial peace of mind than just a credit score.
Some may disagree with me and that?s fine but I think that some of these rules are detrimental to your long-term financial health.
I think that long-term financial security is probably, no really, completely more important than short-term high credit scores. Or even long-term high credit scores.