Credit Report Q&A

What's the best way to manage my growing credit card debt?

There are a number of different things to consider when managing credit card debt. We'll touch on a few of the key things to be aware of.

Avoid a single credit card

If you only have one credit card available and your coming close to maxing out that card, you might consider applying for another card. Having only a single credit card can be risky. If an emergency like an unexpected hospital stay hits, do you have a way to pay for it? You should always try to keep an unused, available amount of credit for an emergency.

Another reason to consider opening another card has to do with what's called credit utilization. Utilization measures how much of your credit you are using in relation to your total available credit. If you have one credit card with $500 charged to it and a credit limit of $1,000, then your utilization is 50%. There's no ideal utilization to shoot for, because as with most things, it depends on everything else on your report. But as a general rule, you want to try to keep your utilization on any one card, and across all of your credit cards, below 50% to avoid the risk of hurting your FICO® score. Research has shown that people who max out a single credit card are more likely to miss future payments, and therefore the FICO score considers people using more of their available credit more risky than people who are using very little of their available credit.

Avoid a large number of credit cards

At the other end of the spectrum, if you have a large number of credit cards that can also be a difficult situation to manage as your credit debt grows. The more cards you have, the more likely it is that you will simply miss seeing a bill and making a payment. Paying your bills on time, even if it is the minimum, is one of the most important things you can do to avoid damaging your credit. Make sure you are comfortable managing the number of cards you have and the total minimum payment obligation you have to remain current.

If you have a lot of cards and it feels unmanageable, one instinct may be to close those cards so you don't have to worry about them. We recommend you do not close credit cards you no longer need as a way of raising your FICO score. Instead, do what you need to in order to remove the temptation to use it, but keep the account open with no balance. Closing an account reduces the amount of available credit you have, and as a result your credit utilization will go up.

Don't forget about APRs

In addition to the number of cards, their limits and the amount you use them, it's also important to consider the APRs of the cards you are using. APRs are not currently reported by credit card companies to the credit bureaus, and therefore they cannot be explicitly considered when computing your FICO score. However, you should definitely know the APR of all your cards so you can add debt to a low APR card and pay it off from a high APR card.

Paying off cards with higher APRs devotes less money towards interest, and leaves more money available to pay down your balances.

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