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

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA
IRAs

Don’t Be Tricked Into Voluntarily Paying Higher Taxes on Your IRA

Traditional IRAs are set up in a way that basically incentivizes you (and your heirs) into paying the highest tax bill possible. Don’t fall for it. Co…
July 4, 2022
Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
Retirees, Make These Midyear Moves to Cut Next Year's Tax Bill
Tax Breaks

Retirees, Make These Midyear Moves to Cut Next Year's Tax Bill

Save money next April by making these six hot-as-July tax moves.
July 1, 2022

Recommended

Financial Advice from America’s Founding Fathers
credit & debt

Financial Advice from America’s Founding Fathers

What money-management guidance can we glean from the words — and experience — of Benjamin Franklin, Thomas Jefferson, Alexander Hamilton and others?
June 30, 2022
When Will Student Loans Be Forgiven?
Paying for College

When Will Student Loans Be Forgiven?

Millions of Americans are waiting for the Biden Administration’s next hint, which could come later this summer, at how he’ll address the student loan …
June 27, 2022
Strategies to Pay Down Your Credit Card Debt
Making Your Money Last

Strategies to Pay Down Your Credit Card Debt

Consider these smart strategies to eliminate or reduce what you owe.
June 17, 2022
Should I Use Credit Card Portals to Book Travel?
credit cards

Should I Use Credit Card Portals to Book Travel?

Your credit card company wants to play travel agent, too. But there are some caveats to consider when booking through a credit card's travel portal.
May 26, 2022