In the world of credit restoration there are a lot of very effective methods for improving
your credit scores. One of the most effective credit score improvement strategies is to
pay off your credit card debt. In fact some people would argue that paying off credit card
debt is the most actionable way to quickly improve your credit scores, and they’re right.
However, you can have too much of a good thing vis-à-vis paying down your credit
card debt. There is a little known, and poorly understood, loophole in the FICO scoring
system that actually rewards you for NOT completely eliminating credit card debt from
your credit files. It has to do with your aggregate revolving utilization percentage, which
we all know is a significant component of your FICO scores.
Here’s how it works. If you eliminate credit card debt from your credit reports then you
have a utilization percentage of 0. This is great for your scores and it’s great for you
financially because you’re not revolving a balance and therefore not paying interest.
But, you can actually earn a few more score points by having a utilization of 1 or 2
percent.
Now, don’t get me wrong…I’m not talking about gangbuster score improvement. But if
you’re looking for every possible credit score point, this is going to yield better results.
And, if you play your cards right you don’t have to revolve a balance in order to achieve
the result. All you have to do is pay off your card and then use it to the extent that you’ll
have use 1-2% of your limit on one of your cards. That will probably mean you’ll use
your card to fill up your tank.
“The Credit Guru”, Longtime FICO Insider & Credit Industry Authority President Of The Ulzheimer Group, LLC
John Ulzheimer is a nationally recognized expert on credit reporting, credit scoring and identity theft. He is the President of The Ulzheimer Group, the Director of Credit Education at DisputeSuite.com, Credit Expert at CreditSesame.com and the credit blogger for Mint.com. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. He has served as a credit expert witness in more than 150 cases and has been qualified to testify in both Federal and State court on the topic of consumer credit.
