Everyone knows the basic rule for building good credit: Pay your bills on time, for a long time.

Suzanne Wooley writing in WealthWatch said what many people don’t realize is how important it is to use far, far less than the total amount of credit available on your credit cards. How much of that credit you use and your bill-paying behavior add up to the most significant factor in your credit score.

“It’s a big issue, even for people who pay their bills on time,” said Gerri Detweiler, head of market information at NAV, which provides free business and personal credit scores.

With consumer borrowing in the United States rising in March to the fastest pace since November 2001, it is poised to become even bigger. And with banks increasing their scrutiny of applications for mortgages and other loans, a strong credit score is critical.

The rule of thumb says you can tap 20 to 25 percent of available credit before you risk hurting your credit score. Experian, one of the credit raters, or bureaus, found that Millennials (19 to 34 years old), who use bank cards less than previous generations, nonetheless use an average of 43 percent of available credit. Gen Xers (35 to 49) use an average of 41 percent. Those 50 and older tap just 25 percent of the credit limit on their bank cards.

Even if you don’t carry a balance, your score may be dinged if you use a lot of your available credit. Most card issuers report balances to credit bureaus around the close of the billing cycle, before you pay your bill.

One way to get your credit score up is to make sure you pay off your bill 10-to-15 days before the balance is reported to the credit bureaus.

Another tip is even if you pay off a credit card early, don’t cancel the card. Just don’t use if for a while. And when you do start using the card again make sure you pay it off fully for several months in a row. Credit bureaus like seeing the regularity of paying it off on a consistent basis.

Ken Chaplin, senior vice president with the TransUnion credit bureau advises, if you keep your access to that paid off credit card, using those cards regularly but without raising you spending, it will help your credit score by lowering the ratio of used to unused credit.

If you have just one credit card that’s close to maxed out, you might even consider opening another account, if you can use it sparingly. Charge a small amount, maybe have monthly bills from companies such as Spotify, Hulu or Netflix charged to it, and pay if off monthly. That will help your credit score. If you open a new account and don’t use the new card it won’t help improve your FICO score. 

One more tip: Say you’ve had the same credit limit for years, but your income has gone up. You might request a higher credit limit. Again, the point is to get it and not use it. 

If you take this tack, the issuer may do what’s called a “hard inquiry” on your account to check your eligibility. That temporarily dings your credit score. So just don’t do it right before an important financial event in your life, such as buying a house. 

If you are planning to buy a home, contact a local mortgage lender who can help you plan to improve your credit score and smooth the way to better financial well being. 

Jeremy Engle is a Senior Loan Officer with Country Club Mortgage, a locally owned Mortgage Firm with offices in Visalia, Tulare, Porterville and the Central Coast.

Jeremy Engle
Country Club Mortgage 
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