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Improve credit score by using credit cards

The credit score is key to one's financial life, and experts say it is a measure of how consumers manage credit. But most consumers are mystified as to how their behavior influences the score.

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We decided to ask readers what they wanted to know about FICO scores. From the responses to our newsletter call for questions, we learned that many people are concerned about inactive credit cards they have, how many credit cards are too many and what you need to do to improve your credit score.

We posed these questions to Fair Isaac product support manager Barry Paperno, who has worked for the credit score keeper since 1995.

A reader wrote, "I use one credit card and have two in the drawer. I want to buy a house in the next two years and wonder if I should begin using and paying off the other cards to get them on the credit report rotation to boost my score."

Yes, it's a good idea (to start using the other cards). The good thing about that is that you have the history, you don't have to apply for it and incur any inquiries. Depending on what the (credit) limits are and how long they've been in the drawer -- they might be expired -- there might be a couple reasons to call the issuer. One is to send you a new card, and another is to check on the limit. If it's not particularly high, see if they can increase it. Credit card utilization (the amount available versus amount in use) is such an important factor: If you've had it in the drawer for a couple of years, and it's a department store card with a $500 limit, it doesn't hurt to ask, "Can you raise that?"

Inside credit scores
A FICO expert discusses the effect of inactive credit cards and what consumers need to do improve their credit scores.
4 questions for Fair Isaac expert
1. Should you use more than one card in order to boost credit score?
2. How often should people use their cards to keep them active?
3. If you have many, will that hurt the credit score?
4. What must you absolutely do to improve the credit score?

(The reader) is probably going to benefit by having more credit available, and if it's two years later that they plan to actually buy a home, then any negative effects from opening that account, such as inquiries, will be long gone. (The reader) will be in good shape.

Again, the more you have available, the lower potentially your (utilization) percentage will be. That said, you can still have a fine score with just the one card.

How often should people use their credit cards in order to keep the accounts active?

Like just about everything, it varies, but I'd recommend using a card at least every six months to keep it active.

One reader wrote saying he had 15 credit cards. If you're applying for a mortgage anytime soon, would it be advisable to close some of those cards because you have so many?

No, closing them is not going to help you. The score likes to see you have a (good) credit mix -- that's looking at the proportion of how many credit cards you have in relation to auto loans or in relation to mortgage loans. As long as it's on the credit report, whether it's open or closed, low balance or no balance, or old or new, if it's on the report, the score is going to count it when counting that mix or when looking at the ideal number of cards. If this person is using 15 cards or has 15 cards over the last 20 years, only three of which they use, the score doesn't care. If it's on the report, it counts it. But that's not heavily weighted, so that's nothing to lose any sleep over, either. Closing it is never going to help your score. Closing accounts could cause them to come off your report that much sooner and negatively affect your lengthy credit history.

Next: "You should've paid your credit cards off, dude."
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