Credit

Wondering how to repair credit? Here’s one tactic that doesn’t work.

There are many myths when it comes to finances and credit, but one that’s particularly misleading is that moving credit card balances to multiple cards will help someone “hide” debt on a credit report.

How to Repair Credit - SAC Federal Credit UnionUnfortunately, many people find out the truth too late: Not only does that sneaky tactic keep debt on your report, but it can actually harm your credit rating too. Talk about a backfire.

Moving day

The basis for the idea that multiple cards might help your credit rating comes from the fact that one major factor in your rating is debt-to-credit ratio. For example, if you have a credit card with a $1,000 limit and you’ve accumulated $100 of debt on it, your debt-to-credit ratio is 10 percent.

So, it sounds reasonable that if you’ve maxed out a credit card (and therefore have a very high debt-to-credit ratio), getting more credit cards and spreading the debt around would help with the ratio.

But it doesn’t work that way.

Hit to your credit

Instead of improving your credit profile by lowering your debt-to-credit ratio, applying for multiple cards will damage your overall credit score because lenders will notice that you’re opening new, low-interest accounts but still maintaining the same debt levels. Too much new credit delivers a blow to a credit score.

Opening a lot of new cards at once also increases the temptation to use them. If you do end up adding more debt to your plate, it could damage your score further. So if you’re having trouble getting a handle on your debt, it’s best not to add to the burden.

Read the fine print

Even if someone doesn’t try to repair a credit rating with the balance-moving tactic, the temptation to get multiple cards might still crop up, thanks to special offers that promise 0 percent interest rates or points toward vacations or products.

Sometimes, taking advantage of a short-term interest rate reduction can be beneficial, but only if the strategy will positively impact your finances in the long term, too.

Before opening a credit card, be sure to read the fine print (and the fine, fine print) to understand time frames for interest rate changes, reward redemption policies, fees, balance transfer rates, and other details.

Still wondering how to repair credit? Boost your credit rating through smart choices, not quick-fix strategies that could end up hurting you in the future.

Have you found an effective strategy for paying down debt? Share it in the comments!

Want more strategies for handling debt and taking control of your finances? Download SAC FCU’s free The Building Blocks of Credit e-book.

The building blocks of credit e-book

Author SAC FCU Managing Editor

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