Improving scores by controlling reported util?

[Anonymous]

Please tell me more about the paying twice a month thing from the radio. I have never payed any attention to my credit before and to look at my scores it shows. I recently got all three reports and disputed some items that didn't belong... I'm trying to have them removed now and it's a pain. I got a secured loan of $250 for 6mo as well as a secured cc $500 from my credit union. I was thinking about applying for a gas card soon as well, but i'm just trying to figure out how i can raise my score the fastest. I read on some of these that you want to only use under 10% of the credit limit... it seems like it won't do much good in my case to only use my cc for $45 a month which is why i'm asking you about them reporting twice a month?

note: this post was split off from "How many CCs is considered Optimal for FICO Scoring?" to start a new thread. The only editing was providing a new thread title.

Message Edited by haulingthescoreup on 03-14-2009 10:07 AM

[haulingthescoreup]

Not sure about the radio part --maybe this was a discussion heard on the radio?

But generally, you have the power to control the balance figure reported to the CRA's which is used to calculate your util (amount owed divided by credit limit.)

We'll assume that your credit union updates your balances on your statement date. This is not your due date; it's the date that the statement is printed and/or pops up on your online account. Some statements always post on the 5th or the 27th or whatever. Most wander around a few days earlier or later each month. But at any rate, you should be able to look at your statements and make a decent educated guess as to when the next one drops.

Five days before the next statement date, stop using the card. Two or three days before the next statement date, pay the balance down to 9% or less of your credit limit. For your $500 CL secured card, this would be $45 or less. Wait for the statement to post, and presumably for the $45 or less to be reported to the credit bureaus. Then go back in and pay off the balance. (It's really easy to forget to do this --don't forget!

You can use the card a lot during the month on things that you would have to buy anyway: groceries, gas, etc. If you do use it a lot, and especially if you want to be very sure that it doesn't get away from you, you can make additional payments through the month. None of this will affect what is reported to the CRA's, which is that $45 or less figure. Learn to think of your CC as a slow debit card, and don't use it unless you have the money in the bank to pay it off, or you know that you have enough money available in your next paycheck to do so.

Some banks report at different times of the month (HSBC, Orchard, US Bank, I think), and others update a month behind (American Express.) Some limit the number of payments you can make per month, and others won't let you pay more than once every 3 days or something. You'll need to get familiar with any little whims like this that your credit union might have.

Once you have multiple cards, most of us find that we do best to have only one card reporting a balance of 9% or less of that card's CL, and the rest reporting $0. Having all reporting $0 tends to lose you points. This doesn't mean that you don't use the cards; just pay them down/ off before statement time.

In the end, this is one of the best ways to raise your FICO scores, and in the process, it trains you to not carry debt from one month to the next. That was never a great idea, with the exception of 0% and other very low APR's I suppose, and in these times, having debt hanging out there is disastrous.

And you don't need to accelerate repayments on your loan. Installment util is looked at for scoring, but it doesn't carry nearly the weight that revolving util does. If you have extra money available, it's probably better to put it in savings and increase your emergency funds.

Just don't get beholden to CC and loan issuers. Both your credit and your personal finances will be better if you don't.

[Anonymous]

Oh, that is great, thank you. What is the revolving credit? I am trying to keep between 3-4k in my sav account at a time. What is a good amount?

[haulingthescoreup]

Sorry, not sure what you're asking... "Revolving credit" is the category that credit cards fall into, along with lines of credit. It's basically where you have a limit that you can charge against, and after paying off that amount, you can keep charging. As opposed to installment credit, where you start out with a credit limit (the loan amount) and as you pay it down, you can't go borrowing against it again.

As for the savings account, that's a great start. With the current economic disasters, it's a good idea to have many months' worth of basic expenses saved up --4, 6, or 8 month's worth. This would allow you to keep current on all your obligations if your income suddenly dried up.

That can be a pretty sobering figure. For those with a mortgage and car loan, and the usual things like groceries, utilities, and so forth, one month's expenses can easily be $3K. Start multiplying that by X number of months, and it gets scary fast. But this is how you keep from losing your house after a layoff or medical disaster.

(And of course, savings and checking are completely independent of credit. They're part of your overall personal financial picture.)

[Anonymous]

(And of course, savings and checking are completely independent of credit. They're part of your overall personal financial picture.)

This is all helpful info and I appriciate it. What do you mean by this sentence above? Do they look at how much you keep in checking and savings?

James

[haulingthescoreup]

---

jimeh wrote:

(And of course, savings and checking are completely independent of credit. They're part of your overall personal financial picture.)

This is all helpful info and I appriciate it. What do you mean by this sentence above? Do they look at how much you keep in checking and savings?

James

---

No, I meant the opposite. Whatever you have (or don't have) in checking and savings is not reported to credit bureaus, because it's not credit. It doesn't directly affect your score.

Many people think that only the well-off can have great credit, but that's not true. It's all in how you use what you've got. There are an awful lot of people who have an awful lot of Stuff, and they're in serious credit trouble, because they can't keep up with what they've bought, despite their incomes.

I mentioned this because it looked like you were somehow linking the amount in your savings to your CC usage. They're completely unrelated. I just meant that it's wise to always have enough immediately available cash to pay off your CC (and line of credit) debt.

You might want to look into some of the personal finance books out there (library or bookstore.) I gave each of my adult kids a copy of Suze Orman's Young, Fabulous, and Broke. She annoys the heck out of me, and every few chapters or so I want to roll up a newspaper and smack her with it, but it's a good overview of the basics of personal finance and personal credit. btw, she doesn't always get the details of FICO scoring perfectly correct, so if there's a conflict, go with what you read here, as long as a statement has been thoroughly discussed and argued over, lol.

I also like Jane Bryant Quinn's books. I have Smart and Simple Financial Strategies for Busy People (2006), and I just ordered the 2009 3rd edition of Making the Most of Your Money – Completely Revised. (You would definitely want this edition, not the earlier ones, but it won't be out until June.) HTH

Message Edited by haulingthescoreup on 03-15-2009 09:15 AM