Credit Card Tips
The amount owed divided by your limit equals the percent credit usage. They care about individual credit cards and your overall usage.
There are four important levels. If you are paying off debt to increase your score, try to pay them down to the lowest of these levels possible. For example, if your limit is $10,000, it is best to keep your balance below $1,000, but still okay if you keep it below $5,000.
- 10% or less = A+ credit rating
- 30% or less = B+ credit rating
- 50% or less = B- to C+ credit rating
- 70% = D credit rating
- Maxed out or over your limit = Fail
Your score can vary within a brief period depending upon your balances at the time they are reported. If you must have a high credit score to buy a home, it is best to keep the balances low the entire time, because it is difficult to know when the credit card companies report your balances.
Many people use one or two cards for most charges so they can get points or cash back. If I put a large charge on my main credit card, I go online and schedule a payment as soon as the charge posts to make sure my debt never reports more than 30% of my limit.
Why your credit score can vary widely within a short time frame
My clients sometimes think that they have no credit card balances because they pay them off every month. However, a credit score is a snapshot in time. If your credit card balance is high at the time the credit card company reports to the 3 bureaus, your score will be impacted by the high balance to limit ratio the day they reported your balance.
Autopay is a godsend
Most of us have busy lives. If anything unusual happens to disrupt our lives, it can be difficult or impossible to pay close attention to the due dates of our credit cards.
I set all my credit cards to autopay the minimum payment on the due date, so that I am never charged the late payment fee and never 30-days late. I just make sure the checking account has enough to cover those costs (and I have an overdraft card on the checking account). Voila! Stress relieved.
Late payments damage credit scores. A mortgage payment that is paid 30-days late or more can lower your score 100 points. Late payments become less damaging each year that passes. If the event is 4-years old, it may not affect the score at all.
The credit bureaus each have many different scoring models. Each model uses a different formula to calculate your scores. If you have a judgement or collection on your credit, even if it is paid, you are in a higher risk model for the time that it is on your credit.
Bankruptcies, short sales, foreclosures, and judgements also put you in a high-risk model. If you are in a high-risk scoring model, that limits how high your score can be, even if all other credit is good. It is rare to get a score over 719 if you are on a high-risk model.
I advise clients to avoid any litigation that will result in a report of a judgment against them if they lose. It stays on your credit, even if you pay it immediately.
Mortgage, Auto, and Consumer Scores
These three categories all use different criteria to calculate a score. Most websites give you a Consumer score. Mortgage scores are usually lower than Consumer scores. If you want to buy a home, it is important to get your Mortgage scores.
If you aren’t ready for me to run your credit officially, then MyFICO is one way to get your scores, https://www.myfico.com/
A Google search may find other methods to get a valid Mortgage score.
If you have unpaid collections, I advise paying them only if the collector will agree to delete them from the credit. If they only show it as “paid in full”, it will lower your FICO score. This is a flaw in the system, in my opinion. The system sees any recent activity in that sector as bad, even if the activity is paying off the collection.
I advise my clients to call the creditor and tell them you will pay if they agree in advance in writing to delete the record if it is paid.
Length of Credit History
Please do not close old credit cards! This is a big mistake. Length of credit history is an important factor in calculating your credit scores. It is so important, that you can increase your score if a relative adds you as an authorized user to a major credit card (store and gas cards don’t report authorized users).
This will help you only if the card meets these criteria.
1. Never 30-days or more late payments
2. Regularly keep a low debt to limit ratio
3. They have had the card for many years
I helped my daughter increase her score 80 points by adding her to a card that meets these criteria. She does not have a copy of the card and is not allowed to use it. This is purely a way to help her build credit.
I recommend keeping your credit cards and using them every 4 to 6 months. If you don’t use them for a while, they no longer impact your score. Companies often cancel credit cards that aren’t used for a while. If you use the card and pay it off every few months, it stays active and improves your score.
You may also decide to autopay something to a card and then have the card autopay it monthly to keep it active. This keeps my Discover card active. I autopay Netflix, then have Discover automatically pay it off every month.
Tips to Build Credit
1. There is a way your debit card can report and help you build credit https://extra.app/
2. You can get secured credit cards. Most banks offer this option.
3. As stated above, a relative can add you as an authorized user.
4. You can self-report utility bills. If you always pay on time, this will help you.
5. Credit Karma offers cards to help people with fair to bad credit. The interest rates are egregiously high, so it is best to pay them off every month.
I hope this has been helpful. If you have any questions or would like personalized advice, call me at 877-828-2008.