Another no-no that I forgot to mention on the last post is about closing you credit cards after you have paid them off.
Do not close any of your cards right after you have paid them off.
I left all my cards open. Some people close their credit cards as soon as they pay them off. This actually hurts you. One of the five factors that credit reporting agencies take into account when figuring out your credit score is the proportion of balances to credit limits on your revolving/charge accounts. Meaning they evaluate your total balances in relation to your total available credit on revolving/charge accounts, as well as on individual revolving/charge accounts. For a given amount of revolving credit available, a greater amount owed indicates a greater risk, and lowers the score.
The five factors that determine your credit score are the following:
- Payment history – 35%
- Amounts owed – 30%
- Length of credit history – 15%
- New credit – 10%
- Types of credit used – 10%
I have attached my credit card debt analysis below. My "credit balance-to-credit limit" ratio is 49.87%. If I had closed the credit cards I paid off my ratio would have been 96.28%! Horrible! Now do you see the difference. After doing some research the ideal ratio is between 35-40%. Ideal when you are trying to buy a home. Having less than 50% is actually pretty good. Paying another $2517 will get me down to the 35% I need before I can start house hunting.
I am closer and closer to my goal. What would be perfect right now is a raise or bonus at the old jobby job. ;-).