Published Date 1/4/2024
It feels like a bait and switch. In an effort to improve your credit, you sacrifice and work hard to pay off a credit card or two and get that liberating feeling that you're making progress. Then you check your credit score to see the effect of your admirable prudence, and you find the number has gone down, instead of up!
What you need to understand is that credit scores factor not just with the amount of debt you have; they also look at your credit utilization — the percentage of your credit limit that you're currently using. "That scoring factor is one reason your credit score could drop a little after you pay off debt," say NerdWallet's Erin El Issa and Bev O' Shea. "Having low credit utilization (30% or less) is good; having no credit utilization may be harmful to your score."
What about paying off installment loans? "Paying off an installment loan, like a car loan or student loan, can help your finances but might ding your score," they report. "That's because it typically results in fewer accounts. (That's not a reason not to do it! Don't stretch out a loan and pay more in interest to save some credit score points.)”
Once you've gotten your balances to zero, guard your credit by making it easier on yourself to pay on time by setting up electronic reminders, monitor your credit report for errors, and dispute any you see. Someone's file may be mixed up with yours, or your identity may have been stolen — both of which can seriously affect your score.
And just because you cleared out some debt, don't get tempted to apply for more credit products in a short period of time — whether it's the purchase of a car, furniture or to take a trip. "Opening new credit lowers the average age of your credit accounts and involves a "hard inquiry" which can result in a small, temporary drop in your score," says the two NerdWallet financial experts. "If you can, wait at least six months between credit applications."
Depending on your total available credit, it might hurt your score to completely close a credit account with a high credit limit. The fact that you have been offered a lot of credit means you have demonstrated proficiency, and that credit utilization thing comes into play again. To make sure closing one card doesn't impact your score, pay off balances on all other cards.
And lastly, if you've just qualified to buy a home and are waiting to close escrow, this is NOT the time to buy furniture on credit, especially if your qualifying ratios are borderline. Before making any large purchases on credit, consult your loan officer. There will be a final credit check before you close, and if your number has gone down, you may risk getting your approval nullified.
Source: NerdWallet, CreditCards.com, TBWS
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
American Home Lending USA, LLC - NMLS ID: 71983. To verify licensing, visit NMLS Consumer Access (www.nmlsconsumeraccess.org). Equal Housing Lender.
NMLS: 19488
American Home Lending USA, LLC
240 S Buchanan St, Edwardsville IL 62025
Company NMLS: 71983
Office: 618-310-0091
Cell: 618-806-2281
Email: jbeck@ahlusa1.com
NMLS: 19488
Cell: 618-806-2281
6/7/2024
Buying a house is the biggest expenditure any of us will ever make. The prospect... view more
6/7/2024
The reaction to this morning’s May employment report drove the 10 year note to 4... view more
6/6/2024
The May Challenger Grey Job Cuts were 63,816 which was pretty much the same pace... view more
6/5/2024
It’s coming. The kind of heat dramatized in an old episode of Twilight Zone, whe... view more
6/3/2024
Seems anyone and everyone interested in real estate is getting whiplash trying t... view more
6/3/2024
These are the three areas that have the greatest ability to impact rates this we... view more
5/31/2024
Sometimes it’s hard to believe that places as beautiful as Florida or as stately... view more
5/31/2024
Inflation in April didn’t increase or decrease; the estimates markets were expec... view more
5/30/2024
Initial Weekly Jobless Claims hit 219K versus estimates of 218K. The four week m... view more