Credit cards are often vilified for their high interest rates, which can be very costly to consumers who carry a balance from month to month rather than paying off the full balance that was accrued. Credit expert John Ulzheimer believes that credit cards do not deserve the bad reputation they have earned.
In a Credit Countdown video on our YouTube channel, John explained why credit cards are not necessarily as bad as they are made out to be and how to use them responsibly without going into credit card debt.
Keep reading to learn more on this topic and watch the video below!
Credit Card APRs
It’s true that credit cards do have high interest rates compared to other forms of credit, even if you have a good credit score. For this reason, once you get into credit card debt, it can be a very deep hole to climb out of, because the interest charges keep adding to your total amount of debt.
However, as John points out in the video, no one forces you to open a credit card or go into credit card debt, so in his opinion, it seems unfair to blame the credit cards with high interest rates for actions that consumers choose to take.
If you choose instead to pay off your balance every month, then you do not have to pay interest on your purchase, so the APR of the card is irrelevant. Therefore, if you are going to use credit cards responsibly, then there is no need to choose a credit card based on its APR.
Always Pay Off Your Credit Cards in Full
The most important rule when it comes to using credit cards correctly is this:
Only charge as much as you can pay off in full every single month.
When you pay your bill in full each month, since you are not paying interest, it is essentially free to use credit cards. The exception to this is if your credit card has an annual fee, but for some consumers, the annual fee on some credit cards may be worth paying in order to reap the rewards offered by the card.
If you want to be a responsible user of credit cards, it is essential to pay off your balance in full every month rather than carrying a balance and paying interest.
Maintain a Low Balance-to-Limit Ratio
If you want to have a good credit score, it’s important to keep a low balance-to-limit ratio (also commonly called the credit utilization ratio). The closer your balance is to your credit limit, the fewer points you can earn toward your credit score.
Don’t take this to mean that you cannot use your credit card often or make large purchases with it. Just be aware that since a higher balance-to-limit ratio means a lower credit score, you may want to avoid doing anything to substantially increase your balance before you apply for a loan, especially a large loan, like a mortgage loan or an auto loan. Otherwise, you could end up with a higher interest rate that could cost you thousands of dollars in additional interest over the course of the loan.
Do Not Skip a Payment
Credit card issuers sometimes offer “skip a payment” programs that allow you to “skip” a payment for one month, especially around the holidays, when consumers may rely more on their credit cards.
John recommends never signing up for these programs because by skipping a payment, you are obviously opting not to pay in full that month. Since you are carrying the balance to the next month, you will be charged interest on the debt and you will have even more debt to pay back the next month.
Instead of skipping a payment, the more responsible thing to do is to go ahead and pay the statement in balance in full just as you normally would.
Conclusions
While credit cards may be risky in the wrong hands, responsible consumers do not need to forgo using them altogether. It is possible to benefit from using credit cards as a financial tool without going into debt or paying interest.
To that end, make sure you always pay your balance in full and maintain a low balance-to-limit ratio, and never skip a payment.
To hear from John directly, check out the video below. Follow our YouTube channel to see more of our Credit Countdown videos!
Buying authorized user tradelines is an investment in your financial future. Make sure you are getting the most out of your tradelines by asking yourself the following questions first.
1. What is my average age of accounts?
Age is one of the most important factors in your credit history, so it is important to understand what your own average age of accounts is and how that metric could be impacting your credit. It will also play a role in determining which tradelines you should add to your account.
Calculating your average age of accounts is easy. Just add together the ages of all of your revolving accounts (e.g. credit cards) and divide this total by the number of accounts.
For example, let’s say we have four accounts and their ages are 2 years, 4 years, 5.5 years, and 6 months. Here’s how we calculate the average age of accounts: 2 years + 4 years + 5.5 years + 0.5 years = 12 years / 4 accounts = 3 years average age of accounts.
You don’t even have to do the math yourself if you use our Tradeline Calculator. Just put your information into the calculator and let it do the work for you.
Use our tradeline calculator to find your average age of accounts and utilization ratios.
Not sure how old your accounts are? You can pull your own credit report for free (without hurting your score) on websites like Credit Karma.
2. What is my utilization ratio?
Your utilization ratio, or the ratio of the debt you owe to the total credit limit of all your revolving accounts, is another important influence on your credit score to be aware of. Your utilization contributes about 30% of your credit score, so high utilization can drag down credit, even after tradelines are added. Therefore, it’s important to calculate your utilization ratio before buying tradelines.
Here’s how to do it: add up all of the debts you owe on your revolving accounts and then add up all of the credit limits of each of your revolving accounts. Take the total amount that you owe and divide it by your total credit limit to get your ratio.
If you’re not a big fan of math, you can check your utilization ratio and find out how adding new tradelines might affect it using our Tradeline Calculator.
If you have credit cards with high utilization, paying down the balances might be a good investment.
3. Do I have any credit cards with high utilization that should be paid off?
Even if your overall utilization is relatively low, individual credit cards with high utilization can still hurt your credit. Adding a tradeline can affect your overall utilization as described above, but will not solve the problem of having one or more cards with high utilization individually.
If you can easily pay down your balances to get the utilization to be 20% or lower, that would be money well spent, because you are lowering your utilization ratios to a level that is considered to be better for your credit.
On the other hand, if the amount that you owe is quite large and you are not in a position to significantly lower your utilization right away, then perhaps getting a couple of high limit tradelines may be the easier route to go.
Either way, utilization ratios are very important and should be taken into consideration when buying tradelines.
A credit freeze or fraud alert will prevent new tradelines from posting to your credit report.
4. Do I have a credit freeze or fraud alert on my credit report?
A credit freeze or fraud alert will block access your credit file, which prevents any new information from being added to your credit report. Therefore, if you have placed a credit freeze or fraud alert on your credit file, new tradelines will not post.
Be sure to check whether you have a fraud alert or credit freeze before purchasing a tradeline and contact the credit bureaus to remove it if necessary.
5. What is my priority: age or credit limit?
While the length of credit history only makes up about 15% of a score, age also goes hand-in-hand with payment history, which is the most valuable factor in credit scoring. The more age an account has, the more time it has had to accumulate a positive or negative payment history.
All of our tradelines have a perfect payment history, and together, age and payment history make up 50% of a credit score. Therefore, we believe it is better to prioritize age in most circumstances.
However, there are some cases in which people choose to prioritize the credit limit of a tradeline over its age. Be sure to carefully consider your personal situation and what is most important to you.
6. What are the credit limits of the AU tradelines?
If you are buying tradelines from a reputable business, the tradelines should all be from reliable banks, have perfect payment histories, and have low utilization. Since these factors are going to be about the same for each card, the two main things to consider when choosing tradelines are age and credit limit.
The credit limit factor is important because it can affect your overall utilization ratio. While individual cards with high utilization can still have a negative impact on your credit, getting your overall utilization as low as possible can still be very beneficial.
Additionally, depending on your goals, the credit limit can be an important factor if you are trying to establish a history of higher-limit accounts in your credit file.
7. How old are the tradelines?
As we stated previously, the age of a tradeline is extremely valuable, and in most cases, it is more important than the credit limit. This is because a seasoned tradeline will contribute not only to your length of credit history but also add a long period of a perfect payment record.
As we said earlier, these two categories together make up half of your score, far outweighing the other categories. Therefore, a good general rule of thumb is to buy the oldest tradelines your budget allows for.
Another reason you want to go for older tradelines is that tradelines that do not have sufficient age can actually hurt your score by decreasing your average age of accounts.
If your average age of accounts is 3 years, for example, your tradeline should be a minimum of 4 years old, but ideally much higher than that if the goal is to see a significant difference. If you buy a tradeline that is only 2 years old, your average age of accounts will decrease, which could damage your credit score. This is why it’s critical to do the calculations using our Tradeline Calculator before making a purchase.
To determine which tradelines to buy, you will need to think about age as well as the credit limit. Photo via Hloom.com.
8. Which tradelines should I buy? How do I choose the right tradelines?
Once you have determined what your priorities are, you will be better prepared to choose the right tradelines for you. If you want to increase your average age of accounts or extend the age of your oldest account, go for the older tradelines.
If you are more focused on credit limit or your overall utilization ratio, check out our higher-limit tradelines.
You can view the tradelines we have available and sort the list by age and credit limit on our updated tradeline list. For more guidance on choosing the best tradelines, read our buyer’s guide to tradelines.
9. Do the tradelines have perfect payment histories?
Payment history makes up 35% of a credit score, making it the most important component. It is crucial that any tradelines you add have a perfect payment history, because even one missed payment can do serious damage to your credit. All of our tradelines are guaranteed to have a spotless payment history.
10. Are the tradelines substantially better than what I already have in my file?
Obviously, a tradeline will only be effective for you if it is superior to the other tradelines that are already in your credit file. The safest bet is to look for one that is significantly higher in age and/or credit limit than the accounts that you already have in order to affect your averages as much as possible.
Keep in mind the reporting date and the purchase by date when buying tradelines.
It is difficult to affect an average, especially when there are already several accounts in your credit file, so adding a tradeline that is only marginally better than your existing tradelines may not have the desired effect. Make sure to invest in a high-quality tradeline that has real potential for results rather than just adding more of what you already have.
11. When is the reporting period and when is the purchase by date?
The reporting period of a tradeline is when the bank reports the tradeline to the credit bureaus, which is usually around the same time each billing cycle, with some fluctuation. You should see any new tradelines you purchased on your credit report once their respective reporting periods have passed.
Since processing payments and adding authorized users takes time, there is a “purchase by” date that tradelines must be purchased before if you want them to report in the upcoming reporting period. You can still purchase tradelines after their purchase by date, but keep in mind that they may not post until the next reporting period.
Our tradeline list provides the reporting period and the corresponding purchase by date for each of our tradelines. Be sure to keep these dates in mind when making your purchase.
12. Which banks are the tradelines from?
The bank that the tradeline is from is important because many banks do not accurately report authorized user data to the credit bureaus. The tradeline needs to come from a bank that has proven to report AU data reliably in order to be sure the tradeline has the best chance of posting.
With Tradeline Supply Company, LLC, you do not have to worry about choosing the right banks, because all of the banks we work with have been proven to report reliably to all three major credit bureaus.
However, there is one exception: if you have any outstanding collections or if you have filed bankruptcy with a certain bank, this can prevent your tradelines from posting successfully, so you will want to avoid purchasing tradelines from that bank.
Depending on your situation, you may need multiple tradelines, but in other situations, just one may be enough.
13. How many tradelines do I need?
Since everyone’s credit file is complex and unique to their situation, it can be difficult to know whether it is best to buy multiple tradelines or one very high-quality tradeline. If there are budget constraints, it is usually most effective to purchase one premium tradeline rather than multiple tradelines that are less powerful.
However, there are other situations in which multiple tradelines might be a better choice.
Just remember that the power of tradelines is always going to be relative to your current credit file. If you are not sure how many tradelines you may need, our article, “Buying Tradelines: How Many Tradelines Do I Need?” can help guide your decision.
14. Does the tradeline company use address merging or work with CPNs?
Watch out for companies engaging in address merging or other types of fraud.
Many tradeline companies tell their customers to claim the same address as the primary account holders of the tradelines, even though they do not live there, in order to increase the likelihood of the tradelines posting. Essentially, they are asking their customers to commit fraud and lie about their address.
This illegal tactic is commonly known as “address merging.” If a tradeline company does address merging, all parties involved could be implicated in fraud, so savvy authorized users will want to avoid these unscrupulous companies.
Similarly, companies often sell tradelines for “credit profile numbers” or “credit privacy numbers,” known as CPNs. We have written at length about the dangers of CPNs, but to summarize, using a CPN instead of your real social security number to apply for credit is identity fraud and a felony offense.
Beyond that, so-called CPNs are often SSNs stolen from other people, especially children, which means these companies are involved not only in fraud but also identity theft.
Clearly, a company that is committing fraud by merging addresses or working with CPNs is not one you want to do business with.
15. Do I trust the company providing the tradelines?
The most important part of the process of buying tradelines is being able to trust the company you are working with. After all, you want to be sure you won’t get stuck with tradelines that are low-quality, are overpriced, or don’t post well. Plus, you want to be certain your tradeline company provides secure online transactions and takes extensive measures to prevent fraud. Watch out for unethical and unprofessional tradeline companies, and make sure to choose one that you trust and that will treat you with integrity and respect.
15. When will my tradelines post?
Make sure to choose a tradeline company that acts with integrity.
Some tradeline companies say that it could take up to 60 days for your tradelines to report. If you don’t want to wait two months for your tradelines to show up on your credit file, we can get tradelines to post in as few as 11 days, and sometimes even sooner than that.
15. How long will I stay on the tradeline?
Some tradeline companies only keep AUs on their tradelines for a single reporting cycle. This doesn’t give you very much time to accomplish your goals.
Generally, it’s best if you can stay on the tradeline for at least two reporting cycles, which should allow you enough time to accomplish your goals. If you think you might need additional time on the tradeline, ask whether the company offers extensions.
Check what the company’s policy is, and remember that if their standard is just one cycle, keep in mind that you’d have to double the price in order to be on par with companies that keep AUs on for two reporting cycles.
16. What steps can I take to ensure that my tradelines have the best chance of posting?
To minimize the chances of a non-posting occurring, make sure to take the following steps:
Remove all fraud alerts, credit freezes, and credit locks from your credit report, since these block new information from being added to your credit file and therefore prevent tradelines from posting. Purchase your tradeline no later than the purchase by date shown on our tradeline list. Consider buying multiple tradelines as a precautionary measure to hedge against potential non-postings. Only buy tradelines from companies that have high posting success rates and a money-back posting guarantee. Do not buy tradelines from banks that you have outstanding collection accounts with or have declared bankruptcy with, since you may be blacklisted from working with that bank again. Use the correct address that you have on file with the credit bureaus so that your identity can be cross-verified with your credit file. Do not work with companies that conduct “address merging,” which is a form of fraud. Double-check your order and payment information for accuracy. Typos in your personal information can cause a non-posting and incorrect bank account information can delay payment processing and therefore can delay the tradeline from posting.
If you have credit cards with low credit limits, you may be interested in increasing your credit limit. In this article, we’ll talk about why your credit limit is important, reasons to increase your credit limit, when and how to request a credit line increase, and more. Keep reading for everything you need to know about how to increase your credit limit.
How Does Your Credit Limit Affect Your Credit Score?
The obvious reason why you should care about your credit limit is that it controls the amount you can spend on that particular credit card. But beyond that, your credit limit also indirectly affects your credit score.
Although credit limit itself is not a factor in credit scores, it plays a role in your credit utilization ratio, which is an important part of your credit score. In fact, utilization makes up about 30% of a FICO score.
Your credit utilization ratio is the amount of debt you owe divided by your credit limit, typically expressed as a percentage. For example, if your credit card has a $10,000 credit limit and you owe $2,000 on it, your utilization on that card is 20% ($2,000 / $10,000 x 100% = 20%).
The above example is an individual utilization ratio since it is the utilization ratio of a single card. Your overall utilization ratio is similar, but it includes all of your revolving debt added together divided by the total credit limit of all of your revolving accounts. Both individual and overall utilization are accounted for in your credit score.
Why is utilization such an important part of one’s credit score? High utilization means high risk for lenders. If you are using most or all of your available credit, this indicates that you may be overextended and you might have trouble paying off your debts. Therefore, high utilization lowers your credit score because it means you are more likely to default.
Utilization (how much you owe) makes up 30% of your FICO score.
On the other hand, low utilization means you are not using very much of your available credit, which indicates to lenders that you are at low risk of defaulting. Therefore, keeping your utilization low is a good thing for your credit score.
Why Increase Your Credit Limit?
To bring this all back to your credit limit, remember that your credit limit affects your utilization ratio. Consider an example in which someone owes $500 on a $1,000 limit credit card. Their utilization is 50%, which is high enough to potentially have a negative impact on their score. But if they were to increase their credit limit to $2,000, their utilization would go down to 25% ($500 / $2,000 x 100% = 25%), which could help out their credit score.
Essentially, increasing your credit limit helps lower your utilization ratio, which can benefit your credit health.
Plus, it gives you more spending power if you ever need it to make a big purchase.
One important caveat: this strategy only works if you do not run up the balance on your credit cards. If increasing your credit limit means you will just continue to spend up to your credit limit and get in more debt, then it’s probably not a good idea.
How to Increase Your Credit Limit
There are a few different ways to go about raising your credit limit.
Wait for the credit card issuer to automatically increase your credit limit.
Lenders will often automatically bump up your credit limit after you have had the credit card after a certain amount of time, provided you have used it responsibly and paid on time every month. However, you usually have to wait several months after opening a card to be considered for a credit limit increase.
Request a credit limit increase.
If you haven’t gotten an automatic credit limit increase, you can request one. You can do this over the phone or on the credit card issuer’s website.
Generally, if you apply for a credit line increase online, this will result in a hard credit pull. However, if you call and talk to a representative, you may be able to get an increase with only a soft pull, depending on the situation.
When you request a credit line increase, you should be ready to provide your total annual household income, your employment status, and the amount of your monthly rent or mortgage payment. Credit card issuers typically state that you can include income from someone else if that person’s income is regularly used to pay your expenses.
Some lenders may ask you to explain why you need or deserve a credit line increase, so be prepared to explain the reason for your request. They may also inquire about how much you spend on credit cards each month.
When to Request a Credit Line Increase
It’s best to wait until the right time to request a credit line increase. Just like applying for a new credit card or loan, you want your credit and your income to be in good shape when you request it.
Potentially good times to request an increase:
A good time to request a credit line increase is after you get a pay raise at work.
After you receive a raise After you have been a responsible cardholder for at least 6 months If you have not requested an increase in at least 6 months When you do not have many inquiries on your credit report When your credit score is high
Situations when you might want to hold off:
If you lose your job or take a pay cut If you have recent late payments or other derogatories If your cards are maxed out or at high utilization If you have only been making the minimum payments on your card If your account is less than 6 months old If your credit limit has changed within the past 6 months If you have applied for multiple other credit cards or loans recently When your credit score is low
How Much Should You Request?
There is no hard-and-fast rule when it comes to how much of an increase to ask for.
You could try calling your bank and asking the representative if there is an amount they could approve without doing a hard pull.
Another approach is to ask for more than you think you need. If the bank does not approve the full credit line increase that you asked for, they will often counter with the maximum amount that they can offer you.
Will Requesting a Credit Limit Increase Affect Your Credit Score?
Depending on the lender and the amount that you request, the credit card issuer may conduct a soft or hard inquiry on your credit. They want to see what your credit report looks like before taking the risk of granting you even more credit.
Check with your credit card issuer to see if requesting a credit limit increase will trigger a soft or hard inquiry.
Are inquiries really killing your credit? Click the image to read the article.
As we discussed in “Are Inquiries Really Killing Your Credit?” a hard pull could reduce your credit score by a few points, but it’s not the end of the world. As long as you keep your inquiries to a minimum, it shouldn’t present much of a problem. It’s when you have several recent inquiries on your credit report that you start to look like you are desperate for credit and you may get denied by lenders.
However, as we discussed earlier, the more significant potential impact to your credit score is the decrease in your utilization ratio if you do get approved for a credit line increase. Since utilization makes up about 30% of a credit score, improving that factor could benefit your score and would likely outweigh the impact resulting from a hard inquiry.
What Are the Downsides to Increasing Your Credit Limit?
Besides the impact on your credit score of potentially getting a hard inquiry, there are a few other drawbacks to consider when increasing your credit limit.
Some credit card issuers may charge sneaky fees to increase your credit limit. If you don’t want to pay a fee, make sure to check the terms of your card before requesting a credit line increase.
In addition, having access to more credit could encourage you to spend more, which could end up doing more harm than good to your credit score and to your overall financial health.
Other Ways to Increase Your Credit Limit
If you can’t get a credit line increase on an existing card, you can open a new credit card.
You don’t necessarily have to ask for a credit line increase if you want to get a higher credit limit.
Another option is to transfer some or all of your credit limit from another credit card to the card you want to extend. However, with this method, the two cards need to be from the same bank, and not all banks allow customers to do this.
If your bank does allow credit limit transfers, you could open a new credit card with them, take advantage of any signup bonuses offered, and then transfer the limit to your older card.
If transferring is not an option, opening up a new credit card with any bank will still increase your overall credit limit and utilization ratio, assuming you do not run up a balance on the card.
Have you tried requesting a credit limit increase before? Which of these methods do you plan to try next? Let us know in the comments below!
If you have credit cards with low credit limits, you may be interested in increasing your credit limit. In this article, we’ll talk about why your credit limit is important, reasons to increase your credit limit, when and how to request a credit line increase, and more. Keep reading for everything you need to know about how to increase your credit limit.
