Here are some good pointers for maintaining credit.
1) Don’t apply for credit unless you truly need it. This is especially true if you have damaged credit. If you don’t have any credit cards, you will need to get one to assist you in maintaining credit. If you only have a couple, you will need to get a couple more. We all know that getting negative information removed from a credit file is difficult if the information is correct. We also know paying off old debts does little if anything to improve your credit rating. The only lever you have to pull to improve damaged credit is to dilute bad credit history and tradelines with good credit history and tradelines. A credit card is the easiest tradeline to get and manipulate to help you with maintaining credit.
The only time I would hedge on the don’t apply for credit ideology is if my credit score is already good or excellent. You could use more good history to maintaining credit.
2) Secured cards do help raise your FICO and are worth having if that’s all you can get. If you have bad credit, it is ESSENTIAL to dilute the negative credit with positive credit. If your score is low; secured cards may be your only option. If you can get a starter credit card, these also will increase you FICO score.
3) Credit line increases will happen, but they may take time. This is especially true if you have a low FICO and/or negative information in the past 30 months on your credit report. Negative information can make a credit card company especially reluctant to grant graduation or credit line increases. Look at it from their perspective: all they can see is that you stiffed the power company in 2006, and the department store in 2005, and you have no history of paying on time. But after a year or so of on-time payments, a CC company become more willing to overlook your sins elsewhere and give you a break. Don’t think you are “wasting your time” with a secured card that takes a long time to graduate. The card is doing its job, counting as a positive TL and helping improve your credit score.
4)Keep your balance above zero, but less than 10% of your credit limit.
FICO likes to see you living well within your means, but managing and not sockdrawering your credit. Having a credit card in your sockdrawer zeroed out for a year doesn’t show you can manage credit, and won’t help your score or improve your standing with the CC company. Using the card but keeping low balances tells FICO you can manage credit superbly, and gets the CC company to thinking that a CLI might draw you out and encourage you to get daring. You can do this even on low-limit cards…just charge small items.
5) Don’t get any negative accounts, ever again.
Negative information will cause you to lose limits, and cause you to have increased interest rates. This is not ideal in maintaining credit.
6) Ask for a credit line increase every 6 months.
If you are denied, call into Customer Care, escalate to supervisors, and demand a review. Sometimes a manual review will get you what you want.
7) Closing a credit card is almost never a good idea.
A significant part of FICO is the length of credit history, and the number of positive tradelines. While closing a credit card account will not affect the length of your credit history (the account will remain on your credit report), this act will reduce the number of open positive trade lines by one. If an annual fee is bugging you, negotiate to have it lowered. A good rule of thumb is that if your FICO has risen 30 points or more, and you have not accumulated any more negative accounts in the year since you last paid the fee, you are in a position to negotiate a lower fee and better terms and assist you in maintaining credit.
8) Your best protection against ratejacking is avoiding negative information and keeping a low balance.
Charging up near your card’s limit is a great way to attract a rate-jacking. Why? Credit card company psychology. Let’s consider two customers for a $1000 credit card. Customer A has a balance that bounces from $600 to $990 or so, and has never PIF. Customer B has never had a balance over $100 or so, and pretty consistently stays between $5 and $25. B has three PIFs in the past year. Who are you going to ratejack? Obviously Customer A, who has demonstrated he or she has to have the credit card, can’t get around to paying even close to his balance, and keeps revolving a high balance. Customer A apparently can’t pay his debt down, so he’s a captive audience. You’re not going to ratejack Customer B now, are you, because you know full well he could PIF whenever he pleases and tell you what bodily orifice to stick your card into. Right? So be a Customer B.
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