“I always pay off my credit cards.  Why don’t I have better credit scores??” 

If you are one of the many people who have credit cards, use them each month for personal or business purposes, and then pay off the balance in full when the monthly statement arrives – Congratulations!  You are paying less interest and keeping more money in your pocket.  It’s also a great way to have a written record of all of your expenses for your personal budget or business bookkeeping needs.

However, you may not see a significant increase in your credit scores AND you may be surprised to see balances listed for those paid off accounts when you check your credit report.

Why?  CREDIT REPORTING LAG TIME.

When you pay your credit card bill, whether by mail or electronically, the credit card company has to process it.  This means waiting for the payment to clear and updating their internal records with your payment information.

Then the updated account information has to be reported to the credit bureaus.  This is typically done once a month.  The financial companies are “subscribers” to the credit bureaus, which means they voluntarily pay to report our consumer information to them.   Finally, the credit bureaus have to internally update each consumer’s account information.

1) Check Your Own Credit
You can get all three of your reports at no cost with your annual credit reports.  These are your REAL free credit reports allowed by law. 

2) Find Your Revolving Accounts
Identify which of your accounts are reported to all three credit bureaus.  Plan to pay these off, or at least down to less than 50% of the credit limit.
NOTE: Do NOT close your accounts when they are paid off.

3) Do Not Use Your Credit Cards
If possible, do not use your credit cards for 30 to 60 days.  This allows the reporting lag time to catch up to real time and reflect your lower or zero account balances.

4) Limit Your Credit Applications
Do not apply for other credit accounts during this time.  Credit Inquiries count against your scores and can lower them up to 12 points each.  Resist the temptation to “save 10% on today’s purchase” at the store by applying for their store account, which results in a hard inquiry whether you’re approved for the store card or not.

5) Check Your FICO Scores  
After 60 days, check your reports and actual FICO scores to see where you’re at.  This will not count against your score and will give you a score that is the closest you can get to what your lender will be looking at.  Then contact your lender and ask what the minimum required FICO scores are this week to be considered for the type of loan you want to apply for.

Some of our clients have seen 30 to 80 point increases in their scores when the lag time catches up and their true account balances are reflected on their credit reports.

For personalized credit strategies based on your existing accounts, order your Credit Analysis today.