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Playing Your Cards Right: 4 Ways Credit Card Use Can Boost Your Credit Score

April 16, 2010

By Barbara Marquand | Money Rates Columnist

The way you manage your credit cards today has repercussions for your financial life well beyond next month when the credit card bill comes again. Your handling of credit cards affects your credit score, which not only influences whether you get approved for new credit but dictates the rates you get offered on everything from car loans to mortgages.

Here are four ways to boost your credit score through managing your credit card use:

1. Pay your credit card bills on time.

Sure, it sounds as dull as admonitions to eat your vegetables and get plenty of exercise, but there's no replacement for the discipline of paying your bills on time, over and over again. Late payments will hurt you now and later. In the short term, you'll rack up expensive late fees from your credit card companies. More than 60 days late? Expect an interest rate hike. Furthermore, late payments stay on your credit reports for up to seven years.

2. Maintain a reasonable number of credit cards.

There is no magic number for how many credit cards you should have. It's a good idea to have at least two--one for backup in case your primary credit card gets lost--but you don't need fistfuls of credit cards. Opening a bunch of new accounts just to build a credit history can backfire, because it will lower the average age of your accounts. Creditors like to see long account histories. Fair Isaac Corp., which produces the commonly used FICO score, says to apply for best credit cards 2012 only when you need it.

3. Don't max out your credit cards.

Among the factors in your credit score is something called the credit utilization ratio--the amount of available credit you use. Lenders get nervous if they see you're using most of your available credit, because that could indicate you're stretched thin financially. Most experts advise you to keep your credit card balances below 30% of your credit limits.

4. Don't close credit accounts just to improve your score.

Canceling credit cards doesn't remove their histories from your credit reports, so don't think you can erase past money mistakes, such as late payments, simply by closing the accounts. Beware, too, that closing credit card accounts will increase your credit utilization ratio if your other balances remain the same. Why? The account closures will decrease the total amount of your available credit, so even if you don't increase your credit card spending, your utilization ratio will still go up. Of course, you might want to close accounts if you have too many credit cards and need to remove spending temptation, but don't close them simply as a strategy to improve your credit score.

By paying down credit card debt steadily, making payments on time, keeping 0 APR credit cards 2012 at low or moderate levels, and maintaining only the number of credit cards you really need, you'll not only boost your credit score--you'll pave the way for a smooth financial future.

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