Paid off my credit cards. Now what?
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So I finally paid off my credit card, and my score went up from 650 to 680. Currently I have two CC: JC Penny store card with $500 limit and a Capital One with $800 limit.
How should I manage my credit cards from now? Use just one? Both? Neither?
Use both, but keep utilization low
A key factor in building credit is payment history. The longer your payment history is – the higher your score will go. If you don’t use at least one card – your score will go down slowly.
As to using just one credit card or both – it doesn’t really matter. However, Fico formula doesn’t treat all credit card the same. Although store credit cards function similarly to revolving credit accounts, retail credit cards won’t contribute to your Fico score as significantly. Consider it something like a 3:1 ratio – for every three ways that a traditional credit card impacts your score, a retail cards makes one impact. For this reason, if you end up using just one CC, use the Capital One CC rather than JC penny.
Most importantly – keep your utilization low. The general consensus is to keep utilization anywhere between 10% – 35%.
Use your credit cards for some of your normal budget expenses (I.E. things you know that you have the money to pay off at the end of the month). Wait for the statement and pay them in full. This will save you money on interest while building your credit. It may also increase the likely hood of being approved for increased credit limits. Increased CL’s over time will lower your utilization which will further boost your score.
To keep utilization below 35% you may need to make one or more pre-statement payments. Only the end-of-month balance reported on your statement is counted towards your utilization.
Use just one CC
The general consensus is that if you only have a balance report on ONE of your cards it will be a little better than having a balance report on both of them. This is true even if your overall utilization is less than 35%. Apparently, Fico formula increases your perceived risk if you owe money to more than one unsecured credit card at a time.
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