One Credit Score Factor to Check Twice During the Holidays
You probably know that paying your bills on time is crucial for your credit score. But there are other factors that play into your score, as well.
One factor that you might not know about: how much of your available credit you use. You probably know it’s bad to max out a card, but even modest changes in your spending can have an impact on your score.
That’s because this factor, known as your “credit utilization ratio,” accounts for 30% of your FICO score. The other major credit scoring model, VantageScore, calls it “highly influential.” Put simply, it’s the second-most important part of your score after paying on time.
Credit card issuers typically report balances to the credit bureaus once a month. If your issuer reports your balance after you’ve charged quite a bit and have yet to pay, your utilization will be high. That can ding your credit score, even if you routinely pay off your balance every month.
Consider making multiple small payments throughout your billing cycle, so your utilization is consistently low, rather than building up to one big payment.
Note that this strategy won’t help if you only pay the minimums on your cards, says Elaina Johannessen, a program director at LSS Financial Counseling in Duluth, Minnesota.
“If you are making your minimum payments and paying half of it now and then later, it’s not making a difference. Pay down debt as fast as possible to increase your score,” she says. If possible, pay in full. Carrying a balance on your cards does not help your score — that’s a common myth.