Proper Credit Card Use Urged

In light of recently released industry figures and the dire economic outlook, financial experts are urging millions of Americans to be more responsible cardholders. While delinquencies and charge-off rates have gone down compared to the previous months, analysts are cautioning consumers against becoming too complacent. U.S. unemployment figures still point at a historic high of jobless rates. Even government officials have admitted that the current economic recession is the worst since the slowdown in the 1930s.

Similar studies conducted by independent and sanctioned research firms are also pointing to an economy and consumer base still unable to perform as well as it did two years ago. With this in mind, credit industry experts are calling on cardholders to rein in spending and focus on improving their financial health.

Many specialists agree that consumers should cap their credit purchases to 40 percent of their credit limits. Credit scores, the all-important basis by which creditors and lenders assess the worth of consumers, are partly computed based on the debt-to-balances ratio. Having a higher ratio will mean lower scores. Banks and card issuers have also recently slashed the credit lines of some 58 million cards. This means that millions of American cardholders will see their debt-to-balances ration increase significantly. Keeping the ratio as low as possible eventually leads to higher credit scores.

Consumers should also avoid opening too many card accounts at the same time. Most creditors and lending companies often consider consumers with too many cards as a potential risk. Also, more cards with large balances can mean more financial burden for a cardholder. This can give banks and creditors the idea that a consumer is unable to settle his or her dues.

In the same manner, analysts warn cardholders against closing too many card accounts in quick succession can alarm card companies and potential creditors. Lenders may have the wrong idea that a consumer does not have the capability to settle balances on time. As a result of too many closed accounts in a short span of time, the credit bureaus can reduce credit scores considerably.

For more responsible consumers, raising the credit limits can lead to better scores and ratings. Keeping expenses low while asking for high credit lines will mean lower debt-to-balance ratios. In return, lower ratios will eventually translate to higher credit scores and better financial opportunities. However, experts point out that cardholders need to have firm control over their finances for this method to be effective. Self control is crucial, they add, for any consumer to safely improve their ratings.