Updated: 10/24/2011 3:41 PM ET|
5 ways to repair your credit scores
Paying off your card balance every month is fine, but there are other steps you can take to get a higher credit rating.
When it comes to cultivating a credit score, you've probably got the good-citizen routine down cold: You pay on time, try to wipe out the entire balance every month and never close too many accounts at once.
Beyond the basics, though, many consumers are still in the dark about what makes their credit scores go up and down.
"We have had so many people over the years who don't understand what goes into a credit score," says Dave Jones, the president of the Association of Independent Consumer Credit Counseling Agencies. "They just live with the old wives' tales."
Consumers understand that the credit utilization ratio -- the total amount of revolving credit someone uses in a month, compared with the amount of available credit the person has -- is a major factor in calculating a score.
But did you know that it's often calculated from the total on the statement date, not the due date? So even if you pay balances in full every month, a card issuer may report a balance. And that can hurt your credit scores.
Here are five ways you can use that bit of knowledge, along with some other expert know-how, to boost your credit ratings:
Pay bills before the statement date
Typically, the balance as of your last statement date is the balance that will be reported to the credit bureaus, says Barry Paperno, a consumer operations manager with myFICO.com, the consumer division of Fair Isaac, the company that created the FICO score. So if you pay most of the bill before the statement date, you can lower your utilization rate. And that can equal higher credit scores.
"How much you owe is 30% of your score, and the utilization ratio is a large part of that," says Paperno.
If you charge a balance every month but pay it off and can't understand why your scores aren't higher, it could be that your utilization ratio is what's depressing your scores, he says.
This might not work with every card. Some lenders don't use the balance on your statement date when they report to the credit bureaus. Instead, they select another day and report the card balance on that date instead.
Paperno's advice: Call your lender to ask when the balance gets reported.
Make multiple payments
Another way to lower the balance on your statement date is to make periodic payments throughout the month.
If you use a credit card throughout the week for everyday expenses and pay it off every Friday, you'll cut the amount of credit you're using at any one time. Check with your card issuer to learn how it handles multiple monthly payments.
"Basically, the lower the balance on your credit report, the better," Paperno says.
What you need to know: Your card company could place a limit on the number of times you can pay in a month, he says. All card companies will take two or three payments per month, but if you are paying weekly or more often, you should make sure the company is set up to handle such frequent payments.
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@Dean Anderson, Dean, your best bet would be to get a "secured" credit card. Open a savings account at a credit union and then ask for a credit card secured by the account. That way there is no risk to you or to the financial institution. Then pay a bill (cell phone or utility) every month with the credit card and pay it off each month. This will help your credit score and give you a more "rounded" credit portfolio.
I sometimes wonder where MSN gets thier financial information. In this particular article it advised for one to make multiple payments to your credit card company over the course of the month. As I have posted here before and will post again, DO NOT DO THIS. Not only this happend to me, but many others that I know of. I thought I was being smart to make multiple payment since I use my card for everything becuase I work overseas. I was tired of my credit score being low because I had high balances at the end of the month. It did not matter, nor does is still, that I pay my bill in full every month. So I started paying my bill twice a month. Well the second month I did this there was a hold put on my credit card. I was told by the credit card company that there are laws that force credit card companies to hold the accounts of people who do this because it is a way of laundering money. I fought and fought with them over this. They put a 30 day hold for two months in a row. They would not give any further information other than what I told you. I have relatives and friends that have had the same thing happen, even with different credit card companies. I made request in writing and was told that any month that I make a double payment I am at risk for a hold being put on my account.
They will be happy to credit the money to the account, but you will not be able to use your card. I looked into this as I thought it was BS. There are requlations that a bank CAN enforce for many large payments being made in a month.
We read all the time where people don't use credit responsibly and end up defaulting or filing bankruptcy to clear their screw ups. I have always tried to pay my bills on time but that is not good in the long run either. When someone tells me I have a low credit score because I don't use credit enough I chuckle. I use credit for the tings i can't save for before I need it. I don't borrow for clothes and vacations just my needs. Like my home or a car. My local banker knows me and use to loan me all the cash I needed on short term notes when I ask. He knows i am good for it. Now he can't do it because the board has to approve any loans over a few thousand. So I don't even use short term notes anymore.
If you live within your means the banking industry doesn't want anything to do with you.
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