Credit scores are a combination of a lot of different variables. There are, however, a few key principles that are crucial to improving your score:
- How LONG you’ve had credit
- How MUCH credit you have outstanding
- How much credit you USE.
We discuss #1 and #2 in other posts but there’s a simple trick you can use to start taking advantage HOW you make your monthly payment. Ideally, you’d like to use as little of your available credit as possible. This is probably THE SINGLE BIGGEST VARIABLE in determining your credit score. So what should you do? Make TWO payments each month.
- The credit bureaus will see a smaller outstanding amount
- You’ll incur smaller fees & interest
Consider this example
You have a credit card with a $2,000 limit. You use this card to pay for $1,300 of utilities, groceries and car payments. Now, normally you would pay this off on the 29th of each month…no problem, right? Wrong….the credit card company is probably reporting to the credit bureaus around the 15th of each month. So even though you’re paying that entire amount off, the credit bureau is seeing that you’ve got $1,300 outstanding of a $2,000 credit limit.
They always find a way to ding you!
By paying this bill in two installments, $650 before the 15th of the month and $650 after, you’re still paying the same total amount off but now the credit bureaus are only seeing an outstanding balance of $650 instead of $1,300…so you look like a person that uses half as much credit and therefore a better credit risk!