The #1 Factor That Keeps Your Credit Score Down

And how to avoid it!

For most people, this one single tip is all they need to follow to have perfect credit for the rest of their lives. I’ve seen clients have everything else in place, except this one and have their credit stuck at 680.

Here it is… Keep your balances on your revolving accounts (credit cards and credit lines) below 50% of the limit of the account. So if you have a $5,000 credit card limit, keep the balance that is rolled over month to month below $2,500. The real goal is to have the balance at $0 at the end of every month, but I realize that may not be a reality for you right now.

This is also the most responsive strategy to get your score up, meaning if you have a current balance over 50% of the limit and you pay it off in full, your score could go up as much as 50+ points in the next 30 days. I’ve done this myself over the past few years and by paying off a couple small cards that were maxxed out, my score went up as much as 80 points in a month.

There is one potential issue with this strategy. If you are a heavy credit card user and charge a substantial amount to your account AND pay it off every month, your score could still get stuck around 680.

Here’s why… let’s say you have a $5,000 limit like we stated before and you charge $3,000 on it for the month of April. May 1st you get a statement showing a $3,000 balance and you send in your $3,000 check around May 20th since it’s not due until June 1st. But between May 1st and May 20th when the creditor gets the payment,
you charge another $2,000 on the account. Then the creditor reports your account to the bureau on the 10th, after charging another $1,000, but before they get your $3,000 payment. You now show a balance of $4,000 on your account with a $5,000 limit and the credit scoring algorithm slaps you with a nearly maxed out account
calculation and your score goes down.

It’s happened to numerous clients I’ve worked with and took a while to ferret out the root of the issue and create the solution to it.

So, if your score is below 720 and you don’t know why your score isn’t going up and you pay off your balance every month, then here’s what you do…

You can either a) send your payment in the day you receive the bill so the gap between the statement and receiving the payment is reduced as much as possible or b) when you do send in the payment, go online or call the creditor to get the total balance as of that day. Then send in a payment for that total amount so that the
account goes to $0 when your payment is received.

Don’t worry, you won’t have to do this forever. You just need to do it until your score gets up to the 750+ range and gets a stronger foundation under it. Then you can go back to just paying what’s on the statement before the end of the month and you’ll be fine.

Comments

You must be logged in to post a comment.