Pay down credit cards not pay off! Here is why!

Did you know that payog off a credit card tells the credit card holder you no longer want the card and after lets say 30-60 days of inactivity the credit card holder will cancel your card. Which will hurt your credit.  When paying off debt here are the do's and don'ts:

Do:

• Pay the balance down to 15% of the credit line.

• Do use the card every month.

• Revolving cards are interest hogs and while you are trying to bump your score you need their reporting capabilities.

• Pay on time.

• Ask for a goodwill adjustment on any past negative late payments or overage charges such as late fees and or over credit line balances.  These little marks stay on your credit for 2 years hurting your overall score.  Creditors love helping current customers who are on time and have been for at least 4-6 months. 

• If they offer you a credit line increase take it.  This will reflext positvely on your credit and will bump your credit score.  

DONT's

• Pay off completely.  Unless it was an installment you were paying the same amount on each month.  How do you tell the difference on installment and revolving?  Explained below. 

• Close revolving account(s).  Your credit scores are determined by a mix of open and revolving credit by closing accounts your scores can no longer use the once opened accounts to calculate your scores and therefore if you closed all of your once opened revolving accounts will drop your credit scores drastically. 

• Transfer balances within 2-4 months prior to applying for a mortgage. This is very damaging and can hurt your scores.  The old creditors may not display the accounts correctly as closed or paid and could show that you are over extended credit wise and drop your scores.  

• How much credit were you given? 
• How much of that have you used?
• In what time frame have you used up the credit line?
• Have your payments been timely?

Look at it this way:

These are the things that determine a credit score.  

Installment Credit:

Perhaps the most distinguishing features of an installment credit account are a predetermined length and an end date, which is sometimes referred to as the term of the loan. The loan agreement usually includes an amortization schedule, in which the principal is gradually reduced through installment payments over the course of several years.

Common installment loans include mortgages, auto loans, student 

loans and private personal loans. With each of these loans, you generally know how much your monthly payment is and how long 

you will be making payments. An additional credit application is required to borrow more money.

Installment credit is considered to be less dangerous to your credit score than revolving credit.

Revolving Credit:

Credit cards and lines of credit are two familiar forms of revolving credit. Your credit limit does not change when you make payments on your revolving credit account. You can return to your account to borrow additional money as often as you want, as long as you do not exceed your maximum.

Because you are not borrowing a lump sum when the account is opened, there is no set payment plan with revolving credit. You are merely being granted the ability to borrow up to a certain amount. However, this flexibility often results in lower borrowing amounts and higher interest rates. Unsecured revolving credit account interest rates often range around 15-20% or more. The interest rate is rarely locked in, and creditors have the right to increase your rate if you fail to make payments.

Revolving credit is considered a more dangerous way to borrow than installment credit.  Carrying high balances drags down your score.

Paying down credit card debt may be the most actionable way to improve a credit score.