Credit & Debt

Should I Split Up My Credit Card Balance?

Advice to manage credit-to-debt raio.

Q: I know that my FICO credit score depends in part on the total amount of my credit-card debt vis-á-vis the credit limits on my cards. I have five accounts, each with a $10,000 limit, and I owe a total of $20,000. Does it matter if the debt is concentrated on one or two cards, or spread across all five? That is, am I better off carrying a balance of $4,000 on each card or dividing the debt between two cards ($10,000 on each) with zero balances on the other three?

You are better off dividing up your debt among the five cards. The fact that you have multiple cards with balances may drop your score slightly, but maxing out your credit on two cards would lower your score even more.

Your FICO score is compiled on the basis of five criteria, which are assigned different weights. The "amounts owed" category, which makes up 30% of your score, looks at the percentage you are using of your total available credit, how much youÕre using on each card and the number of accounts with balances greater than zero. Other criteria include your payment history and the length of your credit history.

The important thing is not to worry about micromanaging your debt -- just concentrate on paying it off. As John Ulzheimer, president of consumer education for Credit.com, explains, "You canÕt fool the FICO scoring model. Consumers may think that they can manipulate debt by moving it to other cards, but in the end you still have the same amount of debt."

More Credit Advice

Most Popular

Tax Wrinkles for Work-at-Home Employees During COVID-19
taxes

Tax Wrinkles for Work-at-Home Employees During COVID-19

Are your home office expenses deductible? How does going out of state to work for a while affect your tax picture? There are some interesting wrinkles…
November 9, 2020
Retirement: It All Starts with a Budget
personal finance

Retirement: It All Starts with a Budget

When you’re meeting with your financial planner, do you talk about your budget? If not, you should.
November 10, 2020
Will Joe Biden Raise YOUR Taxes?
taxes

Will Joe Biden Raise YOUR Taxes?

During the campaign, Joe Biden promised that he would raise taxes for some people. Will you be one of them?
November 10, 2020

Recommended

Strategies to Tackle Debt
Coronavirus and Your Money

Strategies to Tackle Debt

Millions of Americans facing furloughs and layoffs turned to credit cards to stay afloat. Here’s how to get out from under burgeoning balances.
November 24, 2020
Great Cards for Holiday Shopping
credit cards

Great Cards for Holiday Shopping

The branded card of a retailer you are loyal to may have strong rewards.
October 29, 2020
Kiplinger’s Best Firms for Customer Service: Banks, Credit Cards and More
banking

Kiplinger’s Best Firms for Customer Service: Banks, Credit Cards and More

We crunched a lot of numbers (and ran a survey) to crown top firms for their service on banking, credit cards, mortgages, and home and auto insurance.…
October 22, 2020
2 Credit Card Gotchas to Watch Out For
credit cards

2 Credit Card Gotchas to Watch Out For

After an infuriating wake-up call with her own credit card company, one financial services consultant wants consumers to know something: It’s smart to…
October 20, 2020