But in cases where the FICO formulas substitute the credit limit value with that of the highest balance, consumers who spend roughly the same amount each month could end up with lower scores than they deserve. The solution: Run up a balance that's much higher than usual. Your utilization ratio will improve in the following months, Ulzheimer says, along with your scores. (Just pay off that balance in full the next month to avoid interest charges.)
Your scores will drop during the month for which your card appears maxed out, so don't execute this strategy if you're shopping for a mortgage or another large loan at the time.
To find out if you have cards that don't report a credit limit, check your credit reports. You can order one free report a year from each of the three credit bureaus on AnnualCreditReport.com. Charge cards are typically reported as "open," while other credit card accounts are reported as "revolving," Paperno says.
3. Don't ask for a lower APR
In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates. "There really wasn't a downside to doing that," says Gerri Detweiler, an adviser with Credit.com.
"These days, if you call, you may trigger an account review." Should that happen, and the credit issuer not like what it sees, it may cut your credit limit or actually hike your interest rate. This is where having multiple credit cards may come in handy, Detweiler says. "Don't make that call unless you have a backup card where you could transfer that balance."
4. Closed a card? Don't pay it off
Under the old rules, interest-rate hikes applied to both your existing balance and future purchases. Since the Credit CARD Act went to effect, lenders have been limited to applying rate increases only on balances going forward. That said, if you closed an account before the law took effect to opt out of a rate hike - or have closed one since -- you may not want to rush to pay off every last penny of the balance.
In a little-known quirk, FICO counts the credit limits of closed accounts toward utilization ratios only as long as there's a balance on that account.
"You may have a $100 balance on a card with a $10,000 limit, and it's doing wonderful things for utilization," Paperno says. "Once you pay that down, that utilization no longer counts toward your credit score." That means your credit score could take a dip because you paid off the balance.
5. Mix business and personal expenses
Before the passage of the Credit CARD Act, credit experts routinely advised business owners to keep business and personal expenses separate. Use a business credit card for the business and a consumer credit card for other expenses, they advised. Not anymore.
The CARD Act doesn't apply to business credit cards, so using a personal card for your business expenses is safer, says Detweiler.
On the flip side, doing so can easily hurt your credit, especially if your business expenses are high. Even if you pay off your high balances in full each month, they will be listed on your credit report and you could appear overextended. (Of course, there's no guarantee that this isn't happening to you even if you're still keeping things separate. Some issuers now report business credit card accounts to the consumer credit bureaus.) "There's no easy answer here," Detweiler says.
This article was written by Aleksandra Todorova for SmartMoney.
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