Are you using your credit card to the best benefit you? While many people own several credit cards, how they are used can differ greatly. On the extreme end, some max out their cards monthly, while on the other end some barely use it. Below is an article by Devin Norcross, Regional Director and Manager of National Credit Care describing some scenarios on how you may use your credit card, and what is most beneficial.
Quiz Question - Which situation is best for your FICO score:
a) Using my one credit card, each month, for a tiny amount of $5 then paying it off to $0 immediately after receiving the bill?
b) Using all three of my credit cards each month and keeping them all as close to 30% of the limit as I can?
c) Maxing out my one credit card out each month, then paying it off completely when the bill arrives?
d) Rotating my three credit cards around; keeping only one of them at 50% utilization at any given time?
e) Owning two credit cards and only using them in emergencies?
f) Going to the bar and spending all of my money because the FICO algorithms are irritating and continue to cause me high interest rates?
Just in case you decided to look at this line to find the answer before figuring it out; it might be (c), could be (d), possibly (b), perhaps (a), but definitely not (f). Choosing option (e) is terrible because having revolving accounts and not ever using them is the same as not having any in the first place.
The problem with (d) is that a 50% utilization - though it isn’t awful - is higher than where you want to be. Rotating your cards monthly if you have multiple cards is important, though. Therefore, (d) takes 2nd place.
Option (c) is one of the worst options only because of how the bureaus/creditors have set up their system. You may think that you’re smart - maxing out your card then having the funds and responsibility to pay it off - but the creditors report you to the bureaus before they send you the bill. What generally happens, therefore, is that your credit report shows that you are maxed out at any given time instead of paid off.
Option (b) isn’t terrible but certainly not ideal. At a 30% utilization you aren’t losing a lot of points but you are still losing a few. In addition if all of your revolving accounts are being utilized at once, you are penalized for "multiple revolving balances."
The best answer other than contacting us to help you with your exact situation is option (a). Keeping your balance as low as possible on one account at all times and continuously using it each month is as good as it gets.