Credit Cards - Secrets to Increase Your Credit Score

If you have never received mail pre-approving you for a new credit card, you are in the minority. Most consumers have at least one credit card, and the statistics show that credit card debt is sharply on the rise. If you are deep in debt and are struggling to pay off your bills, you must come up with a financial plan and understand the fundamentals behind how the debt accrues.

Understanding how credit card debt impacts your financial health

Credit cards are great for quick and easy purchases without having to carry hordes of cash in your wallet. However, this quick and easy route often leads to impulse buying you can’t possibly hope to pay off anytime soon. Credit card companies know this, and allow you to only pay a minimum balance on your purchases. They hope you do this - the rest of your balance begins earning huge amounts of interest for them, often over 15%. In the blink of an eye, your debt balloons as interest is compounded onto interest.

All your credit cards and their balances are recorded on your credit report. The higher and balance and the more credit cards you have, the worse your credit score. Credit cards are listed as a revolving account, which means there is no end date for your credit loan - which is what a credit card is. Credit bureaus note how well you manage your monthly bills - credit card balances makes up about 30% of your credit score. Pay your bills off on time, and you will have a good credit score … mostly.

I Pay My Bills Off On Time, But My Credit Score is Still Low. What Gives?

The problem is that when credit card companies report your activity to the credit bureaus, some use two tactics to hurt your score. They are:

1. They DO NOT report your credit limit - this is more so their competitors don’t see how they lend out their credit, not to hurt you
2. They report your balance BEFORE your monthly amount is due

So, what happens if this is the case with your credit card company? Well, in a nutshell, bad things happen:

Not reporting your credit limit - If this is the case, the credit bureaus can not properly calculate your ratio of utilization. If the maximum amount you placed on your card was $2000, the credit bureau will believe your credit limit to be $2000. If you constantly rack up $1800 on your card, it looks like you are using 90% of your credit limit! For a healthy credit score, your credit card balances should be below 50% of your credit limit. By not reporting your credit limit, the credit card company is seriously dragging down your score.

Reporting your balance before your bill is due - Even if you completely pay your bills off on time, but always have high balances, the amount owed on your card will constantly be recorded, month after month, instead of a zero balance.

So, what’s the solution? Order your credit reports and find out if your credit limit is being recorded. Then, call your credit card company and find out when they close their dates and mail out your bill. Calculate your balance and pay it BEFORE they mail it out.

Other Little-Known Factors That Affect Your Credit Score

• Don’t close those little-used credit cards! - Remember the utilization ratio? That is, how much you spend versus your credit limit? The credit limit on ALL your cards are calculated together. So, say you usually have a $2000 balance on all your cards, and you have three cards with a total spending limit of $10,000. That means your utilization ratio is 20% - an indicator that you manage your credit cards pretty well. However, say you don’t use one of your cards, and it has a credit limit of $6,000. You decide to close it. BOOM, suddenly your total spending limit is $4,000, making your ratio 50%. Ouch, your credit score will be hit! Instead, cut up that card, or only use it occasionally to keep it active.
• Older, established credit is good - The older the credit, the better. A long, regular pattern of paying your bills on one of your accounts shows you as a solid, dependable consumer. Close that account, and your credit history will be shorter, potentially lowering your score.

Harnessing your rights under the Statue of Limitations

Commonly unknown to consumers, the Statue of Limitations is a powerful law that protects you against lawsuits from your creditors. Once a certain amount of time has passed, which varies depending upon each state, a collector or creditor can no longer sue you for the debt. The interpretation of the Statue of Limitations also varies between states. Generally, the Statue of Limitations begins ticking after your last payment. If you make an interim payment, it would reset the Statue of Limitations clock, since this proves you are actively engaged with your creditor or collector.

Therefore, if you have old debt, inactive accounts, or debt no longer listed on your credit report, then you may not have to repay those amounts under the Statue of Limitations. However, simply because your debt is no longer on your credit report does not mean that you are free from paying, if the statue of limitations has not been reached.

If you have reached the Statue of Limitations for your state, and your debt has reached the seven year mark where it is erased from your credit, then you are in a good position for debt relief. This means that you do not need to repay this debt because it has surpassed the legal Statue of Limitations timeframe – and the debt no longer appears on your credit report or hurts your credit score.

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