Easy ways to use cards to boost score, get a home loan

Pay bills in full and on time, keep credit utilization low to get best lending terms

The Credit Guy columnist Todd Ossenfort
Todd Ossenfort has been chief operating officer for Pioneer Credit Counseling since 1998. He writes our weekly "The Credit Guy" column, answering reader questions about credit counseling and debt issues.

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Dear Credit Guy,
I recently applied for a couple of credit cards not thinking I would get approved – but I was. I have not used them nor do I plan to use them. My husband and I plan to buy a home toward the end of the year once we pay off some debt. Would it be best to close these accounts since I really don’t need them? Your response is greatly appreciated. – Ruby


Dear Ruby,
Generally, it is not a good idea to close accounts because the loss of that available credit can hurt your score. However, because these are new cards that you have not used, it would probably not hurt you too much if you close these accounts now.

One thing to keep in mind if you do decide to close the accounts is that you have two fairly recent “hard inquiries” on your credit report. This action alone probably caused a small downward tick in your score.

The available credit you gained when the cards were approved also should have caused a small upward tick, but it may not be an equal gain.

In other words, it may have hurt you more to apply for the credit than to have been approved. Much depends on the amount of credit you were granted. These hard inquiries will remain on your report for two years, but you won’t have the available credit to balance that off if you close the accounts.

Because of these factors, and knowing your future plans include buying a home, you might consider keeping the cards and using them very sparingly and carefully to boost your credit score. A good credit score will qualify you for the best rates and terms for your home loan.

Here is a two-point plan to ensure you use your credit wisely to build your score:

1. Charge only what you can pay off in full.
Charge less than 25 percent of your available credit on items you have the cash on hand to pay for now and for items that are already in your budget. This means everyday spending such as gas or groceries.

2. Build a solid payment history.
By only buying what you can afford at the time, you will ensure that you can pay the bill on time, every time. This is one of the most crucial factors in credit scoring, because it demonstrates responsible use of your credit.

If you decide to keep the cards, here are three other ways you can further boost your score:

1. Make frequent payments.
Enroll your cards in online bill pay. Any time you use your card to buy something, you should immediately go online and make a payment for the amount you charged. This is an especially useful tactic to use when you are ready to begin shopping for a mortgage. This keeps your credit utilization low, boosting your score and making you look more attractive to lenders.


Video: What is your credit utilization ratio?

2. Don’t max out your cards.
Credit reports and scores are actually fairly fluid and can fluctuate daily. When your credit is accessed, what is shown is your credit at that very moment in time. This is one reason for never charging up to the maximum of your credit limit, especially when your credit report needs to look its best to get a home loan.

3. Keep your credit utilization low.
If your credit report is accessed and you have very little available credit, that will bring your score down as you’ll have a high credit utilization ratio. This is true even if you pay off your balances every month on time because the report can be accessed before your payment is made.

The beauty of this system is that you will never find yourself overextended on your credit, which means you are living within your means. That is a great place to be.

Take care of your credit!

See related: How to cancel your card without hurting your score, 5 steps to a mortgage-worthy credit profile

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Updated: 12-12-2018