I'll be deploying within the year for 12 months. With the additional income, we expect to pay off all debt except our home mortgage. Regarding credit cards, what is the best practice(s) to boost our credit score? Should we close accounts? Possbily request our credit limits be decreased? How many credit cards should we maintain and should there be a small balance on it to show that we are paying on time, every time?
MyFico has a good chart that explains how your credit score is calculated and what has the biggest impact to your score here: http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx
Payment history is most weighted, so continue paying off your debt. If you'd like to close accounts, then close more recent accounts, leaving the longest history ones open. When it comes to credit cards, you need to find which credit card suits you the best in terms of rewards to fees ratio. The next highest weighted is amounts owed, which is typically done as a ratio. This ratio is called your debt-to-available credit ratio. If you're going to pay off all debt except for your mortgage while deployed, then that's the best way to increase your credit score. You'll have a perfect debt-to-available credit ratio.
Carrying a balance and then paying it off at the end of the month every time is the best mathematical way of using a credit card. You get to maximze rewards with no finance charges. Any benefits to your credit score by carrying a balance month-to-month will be minute and probably not mathematically sound. I hope this helps.
Brandon J (not a Certified Financial Planner)
New credit cards will temporarily drop your credit score due to the hard credit pull and decreasing the average age of your accounts. However, within 12 months that would turnaround to a boost in credit score because it will increase your available credit and the number of accounts in good standing (assuming you pay in full every month.) So the best strategy really depends on when you need your credit score to be highest.
I think the only exception to this is if you have very little credit history, in which case getting a new credit card boosts your credit score almost immediately.
Thank you for posting in the Community. USAA offers financial advice to our members which can help in paying off debt as well as tools such as CreditMonitoring to assist with monitoring your credit. Please contact us at 1-800-531-8722 in order to discuss tools and options.
Thanks to Dresius, Brandon Jacobson, and Jessie M. for your insights as well.