Hi, faithful readers. I received a question through e-mail from Brian. He’s looking for some advice for managing his
credit score. Here is what he asked:
If I pay off my minimum balance due, and say my remaining outstanding balance to credit ratio is 0.75, is this very bad for my credit score? I don’t have much of a credit history, because I am a student, and was wondering how negatively a high ratio will affect me. Is it generally the early on someone is developing a credit history, the lower the ratio needs to be to build early on a good score?
Also, if someone has 3 credit cards, and decides to cancel his first one (and does pay off the entire balance on that account), will there be any negative repercussions because of such action? I thought I read somewhere that cancelling anybody’s first card is a no-no.
Here are my thoughts (not advice). A credit score affects someone who is looking for a loan, looking for a job, or looking for an apartment. Even if you’re not in any of those categories, it helps to manage your credit score if you think you might be relatively soon. That being said, a lower balance to available credit ratio is always better, whether your credit history is new or weathered.
Common advice is to leave open your first credit card to record the longest credit history possible on your report. When you’re first starting out, there won’t be much difference in time between the opening of your first account and the opening of your latest, so in your case, I wouldn’t worry too much about closing your first card account. You’ll have a chance to build your history over the years.
It’s unfortunate that a credit score is often used to judge a person. However, as long as a report does not contain any errors, it gives a rough idea of how one is able to live up to a money-related agreement. You can stretch that and say a credit score can indicate how well someone manages money. This is why banks, apartment managers, and some employers (especially in financial jobs) will use credit scores to screen applicants.
If any readers would like to share additional thoughts and suggestions for Brian, please do so. I’m sure he (and possibly other passers by) will appreciate it.
Updated August 4, 2014 and originally published October 2, 2006.