Credit companies are in the business of making money; a lot of money. Most of it in the form of high interest charges on balances not paid back within 30 days. So, as we look at another Christmas spending season in our rear view mirrors, I thought I would share a few credit tips to help reduce the future cost of using your credit card.
If you can’t pay the full bill, always pay the minimum.
Sounds obvious, but you would be surprised how many times a person misses the minimum payment and how that hurts their credit score. Little things really do matter when it comes to protecting and improving credit scores.
If you pay the minimum payment after its due date, you are late. Not only are you paying additional high rate interest on your balance, but your credit card company also reports your late payment to credit agencies like Equifax or Trans Union. These services rate your credit worthiness and share this information with any lender you may hope to deal with.
When you pay on time, you are rated at “R1”, which is perfect. Pay 30 days late? Get an “R2” rating. Pay later than that, and it keeps getting worse. The more frequently you pay your bills late, the worse the impact on your credit score, and that impacts the terms upon which you can borrow. A credit score of 800 is excellent, 675 is average, and below 600 is problematic when you need to borrow money.
Always carry less than 70% of your card limit as your balance on your card
Here’s a secret not many people know. Even if you pay on time and are “R1” rated, when you carry more than 70% of your available credit limit as your balance, credit bureaus use an algorithm that will end up actually rating you as a higher credit risk, and this will negatively impact your credit score. Do everything you can to not carry an outstanding balance. If you can’t pay your full balance, keep your balance under 70% of your credit limit. If you can’t do that, be sure to pay your minimum on time (or early). When you do these things, you will improve your credit score. That will give you better borrowing options and save you a ton on fees.
Today mortgage lending has become almost completely dependent on having a good credit score. If you have any questions on credit scores or mortgages, I’m happy to help you answer them.
Looking for a mortgage? Wondering if you qualify? Interested in refinancing? Our secure and completely confidential “no obligation” quick-form can give you answers, fast. Find it here.