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Earn Extra Credit, Use It Wisely

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Advance Personal Finance

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A good credit card customer can expect a lot of advantages some are not even specifically are from acquiring the credit card.  Some are simply due to good credit behavior.  This came to my attention a few days ago when American Express offered me a six-month, no interest for my American Express Platinum card. It took effect immediately when I enrolled in the promotion. Capital One recently raised my credit limit for my Quicksilver Cash Reward by 75% without me even requesting it. Rewards like these are not randomly bestowed, they are granted for good credit behavior. Kinda like getting extra credit for going above and beyond with a school assignment.  More credit for those who handle credit well.

Why am I earning extra credit from my credit card companies you ask?

I pay my bills on time. Always. Credit card companies appreciate this because it demonstrates that you are a responsible customer.  Also, I pay more than just the minimum due every month. Again, this shows credit card companies that I’m a trustworthy customer.

How does using credit well boost your credit score?

First, FICO scores are made up of five factors, with payment history accounting for 35 percent of the scoring formula.

“FICO’s research has shown that a person’s payment track record tends to be the strongest predictor of the likelihood that the individual will pay all debts as agreed in the future,” credit-scoring expert Barry Paperno told (Paperno also writes’s weekly “Speaking of Credit” column.)

Secondly, by paying more than the minimum due each month, I’m striving to keep my credit utilization ratio as low as possible. This ratio, which compares the amount owed to the amount of credit available, makes up 30 percent of a FICO score.  It’s recommended that credit card utilization be kept as close to zero as possible.

What happens if I abuse the extra credit that I’m rewarded with?

The credit limit increase and the APR promotion can lose their value if abused. How so you ask?

If I were to max out my credit limit on the Capital One card or suddenly accumulate a massive amount of charges on the my American Express, this would run counter to behaving like a smart cardholder and could jeopardize the positive track record I’ve worked so hard to build.

Here are two ways I can avoid getting into trouble with my higher credit limit and extended promotional offer.

* Don’t make excessive charges on either card.
* Take advantage of the credit upgrades, but cut the balances on other cards to adjust my overall credit card utilization.

Capital One and American Express have given me gifts that I must not exploit. If I do, I’ll most certainly pay for that splurge down the road in higher interest rates, added credit card debt and a rapidly falling credit score.

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