Damaging Your Score Even When Balances are Paid
Strangely, even if you always pay off your credit card balances each month, it can still have a negative impact on your credit rating. Here are some tips to avoid that, from the article “Pay Off Your Balance Each Month? Your Credit Report May Not Show It.”
As you may know, the comparison of your balances to limits — often called your utilization ratio — is an important factor in the calculation of credit scores. To preserve your score, experts say that card balances shouldn’t exceed 30 percent of your credit limits.
To solve that problem, you can lower the ratio using several approaches:
Charge Less
Maxine Sweet, vice president of public education for the credit bureau Experian says, “The only sure way to get a lower balance reported is to charge less on the card.”
Pay More Often
During months when your card balance looks set to top that 30 percent utilization ratio, pay off a portion of the balance partway through the billing cycle. That will ensure that whenever the bank reports on your account, you have a less-sizable balance.
Request a Higher Credit Limit
If you’ve been a good customer and have a solid income, the bank may grant a request for a higher credit limit. Just be warned that this can trigger an account review which could have the unintended consequence of actually leaving you with worse credit terms.
Use Those Other Cards
Put some of your monthly expenses on those personal cards to protect against account closures due to unused plastic. When accounts are closed, it can leave you will less available credit overall, which can be a drag on your credit score.
Leading credit score creator, FICO, has said that a maxed-out card can reduce a score by 10 to 45 points, while a 30-day late payment can drop a score by 60 to 110 points.
Missing a payment on a joint account means the entire family could see their credit scores fall. That’s why experts instead recommend adding authorized users on an account, since the debt load and scoring damage should only impact the primary cardholder.
