 TITLE: Understanding Revolving Credit CONTENT: How Do Revolving Accounts Affect Credit Scores?\n-----------------------------------------------\nLike all types of credit, revolving credit accounts can either hurt or help your credit scores depending on how you use them. If you have little or no credit history—say, you just got out of high school or college—getting a credit card, using it for small purchases and paying the bill in full and on time every month is a great way to start building a good credit score. (Without a credit history, you may need to get a starter credit card.)\nMaking your payments on time is the single biggest factor in your credit score, so be sure to meet your payment due dates. See if it's possible to set up autopay so you never miss a payment.\nIdeally, you should also pay your credit card balance in full every month. If you can't manage to do that, aim to keep the balance below 30% of your available credit. Credit scores are highly sensitive to your credit utilization ratio—the amount of revolving credit you're using relative to your total credit limits—and a utilization ratio over 30% can hurt your credit score. To figure out your utilization rate, divide your total credit card balances by your total credit limits. For example, if you have a credit card with a $9,000 limit, a $3,000 balance would put you at 30% utilization.\nOpening and closing revolving accounts can also affect your credit score in several ways.\n*   **Diversifying your credit mix**: Having a mix of different types of credit is a factor in your credit score, and showing that you can manage various kinds of credit can help build a strong credit history. If your only current credit account is an installment loan—for instance, you just graduated from college and are paying off a student loan—getting a credit card will improve your credit mix.\n*   **Causing hard inquiries**: When you apply for revolving credit, the lender requests your credit file from the credit bureaus, resulting in a hard inquiry on your credit report. Hard inquiries cause a dip in your credit score, though usually only for a few months. (The inquiry will remain on your credit report for two years.) In addition, applying for several credit cards or loans at once can hurt your credit score by suggesting to credit scoring models such as FICO that you're in financial trouble. The one exception is when you're rate-shopping for a mortgage or other loan; in this case, the credit scoring models typically treat those inquiries as a single event.\n*   **Closing accounts**: Closing a credit card that you're not using anymore might sound like a good idea, but since it reduces the amount of credit you have available to you, it may also push your credit utilization ratio over 30%. Even if the card has a zero balance, keeping the account open can help your credit score. END