Credit expert with over 20 years experience: The big mistake I made with my first card—and how I fixed it and boosted my score
John Ulzheimer has over 20 years of experience in the credit industry, having worked at FICO, Equifax and Credit.com. But when he first began using credit, he made what he now considers his biggest credit mistake: only using one credit card with a low limit.
"I made it through college and then even into the professional world with one credit card with a credit limit of, like, $600," he tells CNBC Make It.
As a result, his credit card was almost always maxed out or close to it, he says. That caused his credit score to be lower than he thought it should be, despite the fact that he always paid his bill on time.
"I thought, 'Hey, I'm making the payment, so, I must have awesome credit,'" Ulzheimer says. "When I started working in the credit world, I quickly learned this isn't the optimal way to manage credit."
How credit scores are calculated
After he began working in the credit industry, Ulzheimer learned how FICO credit scores are calculated and realized his mistake. Your credit utilization rate, which is the percentage of available credit you're using at a given time, accounts for 30% of your credit score, and experts generally recommend keeping it under 10%.
But because Ulzheimer's limit was so low, he was consistently using much more than 10%. He decided to improve his credit utilization rate by steadily increasing the number of cards in his arsenal and ensuring they had higher credit limits, he says.
Money Report
"Instead of trying to depend on one credit card, I learned how to properly manage a whole inventory of credit cards," he says.
Having more credit cards increased his overall credit limit and improved his credit utilization rate.
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As soon as he spent above $60 on his initial credit card with a $600 limit, it bumped his credit utilization rate above 10%. However, once he increased his limit to $10,000, he could put up to $1,000 on his cards before hitting the 10% threshold.
What to consider before opening multiple credit cards
Opening more cards to increase your credit limit isn't a wise move for everyone who wants to improve their credit score. It takes self-control to manage multiple cards with higher limits responsibly, Ulzheimer says.
"Some people think a $10,000 credit limit means that you somehow have $10,000 cash, and then it's OK to go out and spend all this stuff," he says.
Before you open multiple cards or ask your lender for a higher credit limit, make sure you have a plan in place for how you will keep your balances low and pay your bills on time. "It's OK to have more than one card, and it's OK to have really high credit limits, as long as you properly manage them," Ulzheimer says.
If you feel that having multiple high-limit credit cards will tempt you to spend beyond your means, you may want to stick with debit cards. That way, you can avoid spending more than you actually have.
"It does take discipline to not go crazy and go out and spend, spend, spend, just because you have the capability of doing so," Ulzheimer says.
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