Why Didn’t My Credit Score Go Up?
One of the most important 3 digit numbers in your life is not your weight, unless you are talking about your physical health. In that case a “good” number is subjective and relative. One of the most important 3 digit numbers in your life related to your financial health is your credit score. Your credit score can determine whether or not you get approved for a loan, the interest rate you will pay, and what term the loan will be. Your credit score is made up of various factors, as mentioned in this previous blog post.
When individuals decide that they want to improve their credit, the million dollar question is, “How can I increase my credit score?” Answers may include: correct incorrect information on your credit report, start making payments on time, pay off delinquent debts, get a secured credit card, etc. However, what do you do when all of the information on your credit report is correct, you make your payments on time, and you have an unsecured credit card? Wait; there should not be an issue if all of these things apply. Your credit score should go up if all of these things apply. Not so fast. Your credit score may still go down. Remember, the 2 biggest factors that make up your credit score is your payment history and amount owed. In fact, these 2 factors make up 65% of your credit score. Wow!
If the only debt you have is a credit card with a $3,000 limit and you make the minimum monthly payment on time each and every month, then that will reflect favorably on the payment history portion of your credit score. However, the outstanding balance is also very important. If you maintain an outstanding balance of $2,000 or more, then your credit score could remain the same after each payment or go down. According to credit bureaus, the optimal percentage for credit card usage is 30% or below. This shows that you do not have to use credit. You use it as a benefit and not out of necessity. Therefore, according to our example you would need to maintain a monthly balance of $900 or less. Maintaining a $0 balance is good but may not be reported if there is no activity.
If your credit usage is above 30%, one goal may be to get the balance below 30%. You can do this by paying down your debt or getting an increase in your credit limit. If you do not have the discipline to stop using your credit card, then I would not suggest increasing your credit limit. The first option may take a little time but it could be worth it to you. Patience is a virtue and could mean a higher credit score for you. All the best!
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