How To Use Your Credit Responsibly
According to the most recent credit models, responsible credit consumers are those that keep a high percentage of their credit available on their accounts. That means if you have a $5,000 credit card limit and your balance is $4,000, then your available credit ratio to overall credit available is only 20%. The credit bureaus like to see a lot of available credit, and the higher that percentage, the higher your FICO score will be. It is one way that the credit bureaus can see that you are not in a financially unstable situation, unlike if your cards were all at their maximum. One of the best ways to limit the use of your credit card is to leave it at home, and try to use your debit card for everyday purchases. At the end of the month when you get your credit card statement, you'll be glad you did!
Shopping For Credit - What Is The Best Strategy That Will Have The Least Impact On Your Credit Score?
The rule of thumb here is to shop quickly and for the same type of credit product. That means if you are looking for an auto loan, apply to all of the lenders within a short amount of time (maybe 2 weeks or so) and the credit bureaus will be able to tell that you are shopping for a new credit product. If you spread that time out over, say, a few months, it appears to the credit bureaus that you are being denied credit along the way and you are being forced to look elsewhere for credit. Not a good thing for your credit score.
Types of Credit Available to Most Consumers
- Unsecured Credit Line/Loan: this may be either a credit card, personal loan or any other extension of credit where you don't have to put up any collateral.
- Secured Line of Credit/Loan: prepaid Visas, Mastercards, and home equity loans fall into this category. In the case of the prepaid credit card, you are securing your purchases with cash on hand, much like using a debit card. With a home equity line of credit, you are using the potential value of your home against the balance of your mortgage to access the difference, or equity in the home. In this case you are putting up the home as collateral.