Judging from our inbox, there seems to be a lot of credit confusion. You’ve got many questions — luckily for you, we’ve got answers. Here are nine key things you need to know:
1. How many credit cards should I have?
Some financial gurus will tell you the answer is none. Meanwhile, other card experts say you can have a lot more.
Having one all-purpose card is fine, as long as you’re paying off the balance each month. But rewards cards tend to have higher interest rates, so carrying a balance can wipe out your rewards.
Keep a low-interest credit card if you don’t have an emergency fund. That way, you will have a place to turn if something unexpected happens, such as your water heater calling it quits.
2. Should I carry a balance?
Unless you must self-finance a purchase or are dealing with an emergency, paying credit card interest is just plain foolish.
Some people believe you need to carry a balance for your credit score to benefit. But as you’ll see in No. 3, that’s not really the case.
3. How is my credit score calculated?
While several companies create credit scores, your FICO scores are most likely to influence your access to credit and the interest rates that lenders charge you.
The main FICO scores range from 300 to 850. The higher the score, the more trustworthy you appear to creditors.
These FICO scores are calculated on five factors:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Credit history length: 15 percent
- New credit: 10 percent
- Mix of credit types: 10 percent
For more information, check out “8 Credit Score Myths: Fact vs. Fiction.”
4. How often should I check my credit score?
Experts generally suggest looking at your credit score frequently. It’s easy to do, without paying. Start here:
- “6 Ways to Get Your Official FICO Score for Free“
- “These 19 Card Companies Offer Free Credit Score Info“
Once you get a look at that magic number, you may want to take this advice on how to raise your score quickly.