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Keeping credit score high when you carry big card balances

Too much debt makes issuers wary, even with a perfect payment history

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Credit Care
'Credit Care' columnist Tanisha Warner
Tanisha Warner is the communications manager for Money Management International, where she manages educational content designed to teach consumers about personal finance topics. She writes "Credit Care," a weekly reader Q&A about debt issues, for CreditCards.com.

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Question for the CreditCards.com expert Dear Credit Care,
My credit scores are 740-765, and I have three credit cards. Two cards are at 90 percent of the credit limit and one is at 60 percent. One of my credit cards lowered my credit limit after I made a large payment of $5,000. This is very frustrating because it's hard to make a payment like that just to get punished by the card issuer lowering my credit limit and causing my balance-to-credit-limit ratio to increase again. I applied for another credit card to spread my balances out and improve my usage percentages and for the first time I got declined due to high credit usage. I've never been late a day in my life and used to have several cards with high limits, but now can't get anywhere. I won't be making any large payments anymore for fear of them lowering my limits. What can I do? How can I get approved for a simple balance transfer without getting declined everywhere? -- Broke

Answer for the CreditCards.com expert Dear Broke,
Your credit scores are well above the U.S. average FICO score of 692. However, you have learned that a good credit score is not all you need when it comes to acquiring new credit, especially in a tight credit market. You also need to illustrate that you are a good credit risk. The fact that you have high credit usage percentages on your current credit cards indicates to potential creditors that you present a higher risk than someone who has low usage percentages.

You know that you are applying for the new card to transfer balances in an attempt to create a better balance-to-credit-limit ratio on all your accounts. However, the card issuer knows that even if you have such a plan, you also have the potential with a new card to add to your credit card balances, placing you in a situation where you cannot meet all your minimum payments.

I understand that you want to keep your credit score as high as possible. Your credit history and score is used by many different people to help in decision making processes. Landlords, insurance companies, employers and creditors all use these to evaluate you. However, I am more concerned about the large amount of credit card debt you seem to be currently carrying.

Many people who have large credit card balances make on-time payments of more than the minimum due each month for many years without any difficulty until something unexpected happens. They lose a job, get divorced, are laid off from work, etc., and then many of them have trouble making even the minimum payments on their credit card accounts.
I would suggest that you work out a plan to pay off your credit card balances as quickly as possible and stop adding to the balances. Even if you believe you would have no trouble making minimum payments with a disruption in your income, you will still be in a much healthier financial position if you do not have all the credit card debt. Use a credit card payoff calculator to develop a payoff plan and stick to it. You will be glad you did. And the next time you apply for credit, your credit card balances will no longer be an issue.

Handle your credit with care!

See related: How much you owe affects your FICO score

Tanisha Warner is the communications manager for Money Management International, the largest nonprofit, full-service credit counseling agency in the United States. She manages educational content designed to teach consumers about personal finance topics. You can find more money management advice on Blogging for Change and MMI's Facebook page.

Credit Care answers a question about a debt or credit issue from a CreditCards.com reader each week. Send your question to Credit Care.

Published: May 7, 2012



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Credit Card Rate Report

Updated: 10-23-2014

National Average 15.07%
Low Interest 10.37%
Business 12.80%
Balance Transfer 12.82%
Student 13.14%
Cash Back 14.98%
Reward 15.05%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

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