The rules that credit card companies have to live by changed dramatically with the enactment of new regulations last month. Now, some of the rules for consumers striving to maintain good credit are changing, too.
For the most part, cardholders would still do well to pay on time, keep their balances low and refrain from applying for too many credit cards at once. But some of the old guidelines may not always hold up, as credit card companies continue to adapt to the new environment and look for ways to run their for-profit businesses.
For years, experts warned that opening new credit cards hurts your credit score — not to mention enabling you to run up huge debts. That’s still true: The length of your credit history and new credit make up 15% and 10% of FICO scores, respectively. But with credit issuers lowering credit limits left and right these days, having too few credit cards puts a much more important credit-score component at risk: credit utilization, or how much of your available credit you’re using. Credit utilization makes up 30% of your score.
A quirk of credit score math makes it advantageous to max out certain cards. How? It’s a matter of what the issuer tells the credit bureaus.
Some types of cards don’t report credit limits to the credit bureaus. They include all charge cards from American Express and some high-end credit cards that are marketed as having no preset spending limit, such Visa Signature and MasterCard World. When the FICO scoring system comes across such an account, it will either bypass it for the purpose of calculating credit utilization or substitute the credit limit value with that of the highest balance on record for the account.
In the old days, consumers were encouraged to call their credit card companies and ask for lower interest rates.Don’t make that call unless you have a backup card where you could transfer that balance.