New Rules and Credit Scores

When the ground rules changed for credit card issuers after the CARD Act became law, some of the rules for consumers looking to keep their credit score high changed too.

It’s still essential to pay your credit card bill on time and keep balances low, but there are other moves, which used to be no-nos, that can now actually improve your credit rating.

One example is applying for a new credit card. Consumers used to be warned that applying for new cards would lower their credit score and that’s still true. But with risk-averse card companies lowering credit limits, your credit utilization may be adversely affected.

A new card, on the other hand, gives you more available credit, thus lowering the credit utilization component of your score. Credit utilization accounts for 30% of your credit score, compared to just 10% attributable to new credit card applications. Don’t apply for several new cards at once, however; wait six months to a year between applications to minimize the effect on your score.

Credit utilization is just one of several factors that are used to calculate your credit score. It is, however, the second most important one, right behind your payment history. Between them, those two factors account for almost two-thirds of your score.

The rest of your score is based on the length of your credit history, new credit applied for, and the types of credit you use. For a rundown on these factors and how they affect your score, go to myFICO.