I want to improve my credit score, so I’m thinking of getting a new credit card. I already have another card that I’ve had for nine years. I pay it off every month, so my credit score is pretty good — in the mid-700s — but I want to get over 800. I also have an old Bloomingdale’s card that I lost track of years ago, but I think it’s helping my score to keep it open, so I haven’t touched it. There are so many cards to choose from, and I have no idea how to pick the right one. If the card comes with nice benefits, great, but I don’t want to have to think too much about it. Should I get an airline card, for miles? Is there specific criteria I should consider?
Credit cards are great for all the same reasons they’re awful: They’re built on a flawed system of speculation that doesn’t quite line up with reality. If you get caught on the wrong side of it, the downward spiral is quick and painful. But with a little bit of effort (and luck), you can manipulate the system in your favor. The most important rule of credit cards is to pay your bills on time, in full, every month, so you’re already winning the battle. (It’s still possible to maintain a decent score while carrying a balance, but let’s not go there.)
Like you, I favor the path of least resistance with credit cards. I don’t read The Points Guy or follow any specific strategies for hoarding miles, but I find satisfaction in getting perks just for spending money, and I pay my bills religiously. (Not to brag, but my credit score is in the “exceptional” range, per Experian, which is one of the three agencies that determine credit scores.) If your credit score is over 740, it’s considered “very good,” which means you’re already highly attractive to creditors (mortgage lenders, credit-card companies, and so forth) and eligible for the best deals (like low interest rates and fancy benefits).
To find out how you can make your good situation even better, I called Beverly Harzog, a consumer-finance analyst at U.S. News and World Report who has written several books about credit cards. (She’s also dug herself out of thousands of dollars of credit-card debt, so she’s seen both sides of how the system can help and hurt you.)
Harzog explained that one of the biggest factors in determining your credit score is your credit-utlization ratio, which is just jargon for the percentage of your total credit limit that you’ve spent. Every credit card comes with a limit that you can’t exceed (if you hit it, you’ve “maxed out,” and your card will be declined). Your credit-utilization ratio is calculated from all of your credit cards, so think of them as part of one bucket. For example, if your limit is $1,000 on one card and $1,500 on another card, and you’ve spent $500 between the two of them, then your ratio is 20 percent. Whenever you pay your bills in full, the ratio goes back to zero.
The golden rule, according to Harzog, is to keep your credit-utilization ratio under 30 percent — or, if you’re really trying to boost your score, keep it under ten percent. This doesn’t mean you shouldn’t ever spend more than that; just be sure to pay off the balance right away when you do. “You don’t know when your score is going to get calculated, so pay the bill in full during the month, maybe even more than once,” she said. (This probably explains why my own score is so good: I put almost everything on my credit card so that I can earn more points, but I compulsively pay my bill multiple times a week, especially if I’ve bought something expensive. I have an irrational fear of carrying any balance at all, and apparently it’s worked in my favor.)
Getting a new credit card is an obvious way to lower your credit-utilization ratio, because it gives you more available credit overall (think: bigger bucket). But you could accomplish the same thing just by calling your existing company and asking them to raise your limit, Harzog said. “Someone with excellent credit like you is a very valuable cardholder,” she explained. “You can use that to your advantage to negotiate better terms, and it’ll save you the trouble of applying for a new card.” Or, if you really want to get aggressive about improving your score, you could do both.
Which brings us back to your original question: How do you pick a new card? Sara Rathner, a credit-card expert at Nerdwallet (which also has a very helpful credit-card comparison tool) recommends a process of elimination. “Start by picking one feature that you absolutely want — say, no annual fee — and then go from there,” she said. “The more specific you can be, the more you whittle down your options.” Consider what you’ll be using this card for (i.e., what you spend your disposable income on). If you eat out a lot, for example, you may want a card that provides high rewards for money spent at restaurants.
As for shiny sign-up bonuses — if you can get one, great! But you also want a card that you’ll have for a long time. Another factor that affects your credit score is longevity (how long you’ve had a credit card and paid your bills reliably), so you don’t want to end up with a card that has diminishing returns after the first year.
Speaking of credit history, you should also track down that ancient Bloomingdale’s card and use it occasionally. Sometimes, if an account is inactive for a long period of time, the creditor will close it — and that could ding your score unexpectedly. It’s also important to keep an eye on it just in case of fraudulent charges. And if you do want to close it, that’s fine — just do it after you get your new card, not before. You may see a dip in your score, but it’ll only be temporary.
Remember, excellent credit doesn’t just help you sleep at night and get access to future offers like, say, a great mortgage rate. It also gives you leverage with the credit-card companies you already use. I didn’t realize the power of this until last year, when I randomly forgot to pay a credit-card bill (I was on vacation and not checking my email). I called the company and begged them to waive the late fee, and they immediately said yes. So, flex your good credit as much as you can, and the advantages will keep compounding.