clients make is to get several credit cards and not fully understand how their use effects their credit reporting. Credit card use is one of the leading causes of debt in America. Analytics at NerdWallet 2017 reports that the average American household has over $15,654 in credit card debt with a national debt of $905 billion.
While these statistics are alarming, the biggest mistake I’ve seen folks make is to pay off one card and immediately call and cancel it. You’re wondering, why is this wrong? It makes sense to cancel it because having the option with no self-control to spend will only get you back to owing high balances right?
This approach and thinking, while normal, isn’t the best approach. Your overall Credit Score is determined by creditworthiness and calculated by payment history and credit utilization. Long story short, keep the card open because lenders rate your “creditworthiness” based on existing credit lines and trustworthiness. Another good practice to only use 30% of your cards available credit. Keeping this in mind can help boost your score dramatically when practiced consistently.
3. Get New Credit
This approach is one people are often afraid of. Typically if you struggle with credit health the last thing you want to do is get a new credit product. However, this solution might be one that’s perfect for you. Credit history and open credit lines are additional factors that go into determining your score and can often increase your score in the long run.
Opening a new card, loan, or credit product and making on-time full balance payments can increase your overall score and add to your overall credit history. This approach, while more long-term, can dramatically increase your score over time and increase your creditworthiness.
Use these tips and get started with building credit or even repairing your credit so you too can have you Beamer, Benz, or Bentley. Building wealth starts with good habits, discipline, and consistency. Practicing healthy credit habits can dramatically increase the quality of your overall life when done correctly. Go be great my friends!