I have titled today’s post as, five common credit card questions answered. Credit cards can be complex, and even experienced cardholders have questions. Inaccurate assumptions about credit cards often prevail over the facts. We answer a few of the most commonly asked credit card questions.
Should I close my inactive credit card accounts?
The simple answer is no, don’t close your inactive credit card accounts if you can. Having credit cards with a lot of available credit can actually help your credit score by increasing your available credit on your credit-to-debt ratio. In addition, whenever you close a credit card account, the clock starts ticking toward the seven-year mark, when the account—including the good credit history from it—disappears from your credit report. Because banks will eventually close inactive accounts, keep your account open by charging a small amount every month. Then, pay off the balance before the end of the billing cycle. You’ll be able to maintain an active account on your credit report and keep your credit-to-debt ratio nice and healthy.
Is my credit score affected if I am denied credit?
Your credit score is not affected if you are denied credit after applying; what can affect your score is the application itself. Each time you apply for credit, an inquiry is sent to the credit reporting agencies. A single application/inquiry won’t do much, but if you’re denied credit, and then apply at different places in the search for a card that will allow you credit, those inquiries will stack up. Several inquiries in a short time—whether denied or approved—are a red flag to creditors. You’re better off working to improve your credit for three to six months after a denial before attempting another inquiry.
How many cards can you have active without impacting your credit score?
You can have as many credit cards as you can qualify and pay for. However, there is a limit to how much of those credit cards are taken up by unpaid balances. The credit-to-debt ratio is a large part of the criteria lenders use to determine creditworthiness. The higher your debt against your available credit, the more risk you become to creditors. Keeping balances low is the key.
What if my spouse has poor (or no) credit?
While marriage does not automatically alter each partner’s credit score, applying for a big purchase, such as a car or home, can get a little sticky if one partner has a high credit score and the other has a low score—or no score at all. Before you apply for any credit together, understand each person’s credit situation up front. Applying for a joint credit card account can help improve the lower score partner’s credit score over time. In the meantime, consider having the higher score partner apply for credit alone, or wait it out until the low score partner’s situation improves.
Will my credit be affected if I co-sign for a credit card?
Many parents ask this question when their kids are getting ready to go off to college or leave home for the first time. While co-signing for your child’s first credit card can provide funds in the case of emergency, doing so puts your good credit at risk. If the applicant fails to meet the conditions of the loan, you will be responsible for paying the bill. If you co-sign, have the creditor send you a duplicate statement, so you can address missed payments before the creditor turns to you.
Credit cards provide a lot of freedom, but they are also a great responsibility. Keeping yourself informed regarding these and other questions about credit cards can help you stay in the black.