New Credit Card Laws Can Affect Your Score

The credit card laws that were passed last year and took effect in February are generally considered protective of the American consumer. However, it means the credit card game has changed as both the card issuers and consumers adjust. With a new game, there are some new rules for maintaining a good credit score.

And whether you’re planning on a major purchase – a house, a car – or just want better insurance rates, a good credit score is important. So here are three things to keep in mind:

  1.  It might be good to open more cards. With issuers lowering credit limits, your “utilization rate” – the ratio of debt to available credit can go down suddenly. That makes up 30 percent of your score, so having more cards is a way to combat limits that have been lowered.
  2. Use cards or consider paying inactivity fees. There is a proposal among lawmakers to stop lenders from charging card-holders for accounts they don’t use, but right now, if you aren’t using a card enough, you can be charged what basically amounts to an inactivity fee. It might seem to make sense to close such a card, but especially if it’s a long-standing card with a higher credit limit, closing it could hurt your score – as both length of credit history and the utilization ratio mentioned above would take a hit.
  3. Don’t immediately pay off a closed card. If you close a card, to avoid a new annual fee, for example, it might be a good idea not to pay it off completely. Instead, pay a small balance off slowly (obviously, don’t pay more in interest than the fee would be!). Even though the account is closed, your score’s calculation includes the credit limit in the utilization ratio, and will until the balance reaches zero.

Some of the above might seem the opposite of what makes sense, but your credit score is a complicated animal, so it helps to know how to play the game. For more information on this, see the link below.

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

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