Consumer Comeback Blog

How to Use a New Credit Card to Improve Your Credit Score

Life sucks when you have a poor credit score. You might find that you’re turned down for a job (although using a credit score as part of employment screening is illegal in several states now). You might be refused entry into a professional organization. You might be refused car insurance, or be asked to pay more for your car insurance (although that practice, as well, is becoming less common as more states outlaw that practice, too). Most important, you won’t be able to get access to credit for the things that you need and want to buy.

Understanding balance transfers

One way to go about improving your credit score is by using a new credit card that offers you a balance transfer. Before the recession, credit card offers that let you transfer balances from existing cards were relatively popular. The way they would work is to offer a low introductory APR, and you could transfer the balance from a high-interest card to the new one with the lower interest.

The key, of course, is to make sure that you’re not going to be stuck once that new interest rate kicks in. If the new interest rate is higher than what you’re paying right now, be careful. The introductory period might give you time to pay down the balance and make it worth it, but make sure that’s the case before you sign up.

How does it help?

Transferring a balance to your new credit card helps your credit score in a couple of ways:

  1. It lowers your ratio of debt to available credit. Because you now have more credit, you’ll see a slight jump in your score. Be careful not to max out the old credit card after you transfer your balance, however, as this will just put you back into the same boat you were in.
  2. It lowers your overall balance. Because the new car has a lower interest rate, you’re going to be paying off more of the debt you owe, which will improve your credit score. Here again, make sure you’re doing it right. Pay the new card the same payment amounts (or higher) than what you were paying on the old one.

Using this kind of tactic is one element in an overall strategy that may be able to help you increase your credit score.

Photo via szlea