Do You Carry Zero Balances On Credit Cards

Category: Finance, Credit.

Are you one of those people who pay off your entire credit card balance each month?

Do you have credit cards that you do not use? Do you carry zero balances on credit cards? If so, you probably think that you are doing your credit score a favor, but you are not. In order to have a debt ratio, you have to have open accounts with balances on them. Thirty percent of your credit score is calculated and formulated according to your debt ratio. Why? First and foremost, they make sure that you pay your bills on time.

Lenders look at several things when you ask to borrow money. Secondly, they look to see how well you pay off debts over the course of time. They want to see that you have made regular, timely interest payments in the past. You see, lenders make money from the interest payments that you make each month. If you pay off your balances each month, you are not paying any interest. A good debt ratio is between 10 and 25% .

Now before you go wild and max out your credit cards, you should know that balance is the key to maintaining a good debt ratio on your revolving credit accounts. This means that a credit card with a$ 1, 000 limit should only have a balance of$ 100 to$ 25 Following are some tips to help you improve your debt ratio: Multiple Cards- Carrying a small balance on multiple cards is better than carrying a large balance on one or two cards. Be careful not to make additional charges. If you only have one or two credit cards, apply for another and split your balances evenly. Keep your debt ratio less than 25% . Keep them current by charging a small amount on them every six months. Open Accounts- Do not close old credit card accounts.

Credit Increases- Ask for credit increases on your credit cards. Business Accounts- Pay attention to business accounts. This will improve your debt ratio immediately if you do not charge anymore than your current balance on your card. Credit reports do not distinguish between personal and business accounts. So, what should you do if your debt ratio is higher than it should be? You can use this to your advantage by maintaining a good debt ratio on business lines of credit. Open up new lines of credit and distribute your debt evenly.

The goal is to improve your debt ratio NOT increase your spending limits. Be careful not to tap into your new credit lines. You should view your credit increases as mere numbers on your credit report rather than money that you can spend. Continue to make consistent payments on your credit cards each month and freeze spending until your debt ratio is less than 25% . If your debt ratio is still high or if you do not qualify for additional lines of credit, pay more than your minimum payment each month until you get your balances down.