Confused Why Your Credit Score Is not Rising
Do you pay your debts in full every month, have no past due accounts, no high balance loans due, and have no late payments on your credit report, have a car loan but it is current, and only one credit card that you use each month, but wonder why you do not have perfect credit? Has your credit score actually gone down, and this has confused you? You would think given that your payment history is perfect, that you would have a perfect credit score. Yet obtaining a perfect credit score is much more complicated than that. There are literally hundreds of variables that are part of a complex formula for the calculation of a credit score.
The factors listed above are just that factors, while they are important towards your credit score, but they are not all defining. There are plenty of other factors that can be keeping your credit score low. Paying off a loan early does not boost your credit score, nor does simply have a loan boost your credit. Where loans can help your credit score is by having a good payment history listed for them, with no late payments.
If you have made all your payments on time, have no high balance outstanding loans due, and only one credit card that you use on a regular basis, yet your credit score is too low something else is going on. One big aspect to your credit score is credit utilization, in fact it accounts for 30 percent of your credit score. Your credit utilization is the amount of available credit that you are actually using month to month. All of your credit limits are tallied up and combined, as are your current balances, to determine your credit utilization rate. The lower your credit utilization rate is, the higher your credit score will be.
Your credit utilization is one of the single most important factors for obtaining a credit score of 75 or higher. In fact a recent study by FICO found that the majority of consumers with a credit score of 785 or higher only used an average of 7 percent of their available credit limit on their credit cards. This study would suggest that indeed keeping your balances low is beneficial for your credit score. Your credit utilization rate can mean the difference between a good credit score and a great credit score.
One last thing to keep in mind regarding your credit utilization score, paying off your balance in full by the end of the grace period does not reflect into your credit utilization rate. This is due to the fact that your credit utilization score is based off of your last credit statement balance. SO for example if you had a $2000 credit limit, charged $1600 and paid it off in the same month, you would still have a credit utilization rate of 80 percent.
If you want your credit score to improve, you will need to check and see how much you are charging every month, and reduce this amount to below 30% of your available credit. One trick you can use is to call up the credit card companies you do business with, and point out your excellent payment and relationship you have had with them, and ask for a credit limit increase. Explain to them that you are aiming for a credit utilization rate below 30% and the low credit limit you have is hurting your credit score due to needing to charge X amount per month. If this does not work you could also apply for credit elsewhere, seeking out a higher credit limit. This can oftentimes work with a credit union that offers their own credit card. Just remember that applying for new credit does result in a temporary dip to your credit score.