What your mother (or father) didn’t tell you about credit.

Every day I speak with clients that truly don’t understand why they can’t get their credit scores above a certain number.  Yes, that pesky little 3 digit number that has become all important to everyone of late.

The truth is, they were never taught how to get above a “poor” or “fair” score.  These are people that pay on time.  They might be living a little close to the edge, but that is what they have always done.  That is what their parents and friends have always done and the fact is NO ONE TAUGHT THEM HOW TO USE CREDIT TO THEIR ADVANTAGE.

It is my wholehearted belief that every student in America should go through a program before leaving high school that teaches them what can damage a credit score and what can help.  Yes, the things you do can help.

Myth #1 – Even if I max out my credit cards as long as I pay it down when the statement comes, it will help my credit.

EEEEEEE (buzzer sound) While you always want to pay off your credit card debt, what the good folks at the credit bureaus see is this – 90 to 100% usage of available credit on a consistent basis.  While the amount of point that you are LOSING on a consistent basis may vary I have an article from 2009 that I share with every client.  By Jerymy M. Simon for CreditCards.com it has a table in the article that reveales the damage points from common mistakes.  This particular mistake??? For a 680 score 10-30 points.  That is per month/per card.  Add that up!!! Still can’t figure out why your scores aren’t going up?

Solution:  Pay the debt down until you are no more than 30% of your available credit limit.  Example: for a $1000 credit limit your usage should be no more than $333.  Use the difference to pay cash for things you would normally charge.

The bureau now sees that you are using your credit and using it responsibly.  Not only is this taken into account by the scoring system, but any underwriter looking at a potential loan for you.

This is just one of the many things that clients can do to raise scores.

I’ll be sharing more of these myths in the days to come.  I welcome your questions and comments.

Have a sticky credit question?  Leave a comment!