What Is a Perfect Credit Score? (And How to Get One) [2022]

The “perfect credit score” is a bit of a misleading term because just being in the top tier of credit scores usually will grant you the same privileges as having the highest possible credit score.

Nevertheless, many people are interested or at least curious about how to obtain a perfect credit score and there are a number of things you can do to set yourself up to achieve that.

Here’s everything you need know about how to get a perfect credit score. 

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

What Is a perfect credit score?

The perfect credit score is 850 on both the popular Vantage and FICO models, which have a range of 300 to 850.

But this is a bit misleading because credit scores that are much lower will usually give you all the benefits of a perfect credit score as described below.

Credit scores broken down

In case you need a refresher, here’s how your FICO score is calculated.

Your FICO credit score is determined in the following way:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

Payment History (35%)

Payment history is the #1 factor for determining your credit score.

Late payments will stay on your credit report for 7 years, although some bankruptcies (Chapter 7 bankruptcy) will remain on your report for up to ten years!

Luckily, the negative effect of late payments and other negatives begins to lessen as more times passes, so although it might stay on your report for 7 years, the effect will usually only be felt for a limited amount of time (i.e., a few years).

How much a late payment affects your credit score depends on a mix of factors, including:

  • How late they were and the number of past due items listed on a credit report
  • The amount of money still owed on delinquent accounts or collection items
  • How much time has passed since any delinquencies, adverse public records, or collection items

Utilization (30%)

Utilization is your credit to debt ratio. You find this by dividing the amount of debt you have by your total credit limit. So for example, if you have a $10,000 total credit limit and owe $5,000 in debt, then your utilization is at 50%.

Credit History (15%)

The credit history category consists of the of the following factors:

  • Longest opened account
  • Average age of account
  • Time since newest account
  • Time since each account was last used

The most important of these factors is the age of the longest opened account while average age of accounts is second.

New Credit (10%)

This category is most known for its effect felt from hard inquiries.

Hard inquiries result when your credit is pulled for review by lenders and certain other institutions and they differ from soft inquiries in that the latter don’t affect your credit score.

Other factors besides hard inquiries in the new credit category are:

  • How many new accounts you have
  • How long it’s been since you opened your last account

Mixed Credit (10%)

This category evaluates your overall “mix” of credit lines.

So for example, it wants to see if you have a diverse range of credit consisting of different types of credit lines like student loans, auto loans, home loans, credit cards, etc.

If you need to freshen up your knowledge on credit reports, check out my introduction to credit scores and reports.

There are dozens of credit scores

There are tons of different types of credit scores so it’s good to know that there can be different types of perfect scores (850, 900, etc.).

Just like new software systems like Microsoft Windows are rolled out every few years, FICO every few years comes out with different editions of its scoring model.

For example, here are some of the previously released editions:

  • FICO 98 (1998)
  • FICO NextGen (2001)
  • FICO 04 (2004)
  • FICO Score 8 (2008)
  • FICO Score 9 (2014)
  • FICO Score 10 (2020)

Each edition is implemented in order to more accurately predict the credit worthiness of consumers based on new developments in modeling, testing, and research.

For example, when FICO Score 8 came out it lessened the blow that isolated late payments would have on a credit score, devalued the benefit of authorized users, ignored collection accounts of less than $100, and made high balances on credit cards more punishable.

Also, the FICO 9 model helps eliminates the negative effect of a paid collection account and also lessens the negative effect of medical collections.

Industry specific credit scores

FICO also develops industry specific FICO scores.

In addition to the “general” credit score, there are industry specific scores for the following:

  • Auto
  • Mortgage
  • Credit card 
  • Installment loan
  • Personal finance

These industry scores don’t typically follow the 300 to 850 scoring model of the general credit score so you might see perfect scores of 900.

But while the scores can vary, they are generally pretty close. Also, it’s never guaranteed that a given industry will use an industry specific score, since some choose to use the general scores.

Different bureaus

Each of these different industry versions also have different editions and also come in different versions based on the credit reporting agencies applying them (three major credit bureaus are Equifax, Experian and TransUnion).

So for example, you have your “general” FICO Equifax credit score in multiple editions, your “auto” FICO Equifax in multiple editions, and so on and so on.

That’s how you get to over 50 FICO credit scores (or even over 60 when FICO 9 is fully implemented) different types of credit scores. The chart below (via Bankrate) breaks this down in chart form which may help:

screen-shot-2016-11-23-at-7-31-54-am

How many people have a perfect credit score?

According to CNBC of the 232 million U.S. consumers who have FICO credit scores, about 1.6 percent, have perfect 850s.

In the end, you don’t actually need an 850 to get the benefits of a perfect credit score, though.

In fact, the real perfect score is likely a 760. 

According to CNBC, a 760 can qualify you for the best mortgage rates while a 720 can qualify you for the best car loan rates.

The FICO mortgage calculator seems to back this up, lumping credit scores at or above 760 in with the best interest tier.

perfect credit score

So all you really need to do is try to get to that upper bracket of credit which usually is about a 760.

Once you get over that, there’s really nothing to gain in many situations, though it’s possible that in certain markets you might get a slight nudge if you’re closer to 780, 800, etc.

Personally, I would rather hover around 720 to 760 while being able to take advantage of awesome credit card rewards then worry about maintaining an 850.

However, if you really want that perfect score here are some tips.

5 Tips for getting a perfect credit score

#1 Your payment history needs to be squeaky clean

Payment history is the #1 factor for your credit score so it shouldn’t come as a surprise that you’re not going to have a perfect credit score if you have late payments, bankruptcies, liens, judgments, collections, etc. on your credit profile.

According to FICO data, “a 30-day delinquency could cause as much as a 90 to 110 point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.”

So you can imagine how difficult/impossible it would be to climb up into the mid 800s with negative marks showing on your credit report.

Those negative marks do lose their affect on your credit score over time, but when it comes to obtaining a perfect credit score,  you’re not going to get there with a negative history.

The good news is that you can still achieve a very high credit score even with negative marks.

The key is that there needs to be some time between the present time and your negative marks.

Also, if your credit report is littered with negative marks, that’s a very different situation from someone with an isolated one or two hiccups.

#2 Utilization needs to be low but not too low

You’re never going to have a perfect credit score if your utilization is high. And if you want to hit the perfect score, I’d shoot for somewhere between 2% to 4%.

Remember, having 0% utilization won’t benefit you as much as having a little bit of utilization.

According to MyFICO, Barry Paperno, consumer operations manager for FICO stated that a tiny reported balance can trump a zero balance. 

“In short, the lower a consumer’s credit utilization, the better, but having a small balance is slightly better than having no balance at all.”

In fact, according to TMF, “the average FICO high achiever (800+ FICO score) uses 4% of their overall revolving credit limit,” so that should give you an idea where your utilization should stay.

So if you’re shooting for a perfect credit score, you want to make sure that you’re paying off your credit card at the correct time so that your credit card statement will reflect a small balance that puts your utilization under 5%.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

#3 Credit Mix plays a role

Credit Mix makes up 10% of your credit score and it’s often considered the least important factor for your FICO score. Because of that fact, many people don’t ever think about credit mix.

But credit mix does play a role in obtaining a perfect credit score.

Practically speaking, mixed credit is important because FICO says having a variety of loans is necessary for earning a perfect credit score.

Here are the different types of credit:

Installment credit lines

For installment credit lines you usually pay a fixed amount each month until you pay down an entire balance due. Common examples of installment loans are:

  • Home loans
  • Auto loans
  • Student loans
  • Personal loans (can often be revolving)

Revolving credit lines

Revolving credit lines offer you a credit limit that you can utilize at whatever pace you want to. Common examples include:

  • Credit cards
  • Store credit cards (Macys’ card, GAP card, etc.)
  • Trade lines (credit line at a jewelry store or furniture store)
  • Personal loans

Open lines of credit

Open lines of credit are credit lines where you’re given an unspecified amount of credit usually on a monthly basis and expected to pay that balance in full each month. Many open lines of credit will not reflect on your personal credit report (unless you miss a payment).

Other open lines like charge cards do report on your credit report.

Common examples include:

  • Utilities
  • Charge cards

The ratios needed for mixed credit

It’s not clear what the ratio needs to be in order to maximize your credit mix but just having one of each type of loan probably helps a lot.

I’d venture to guess that if you had a few credit cards and a couple of installment loans, you’d probably be able to maximize that category.

Paperno at FICO and states that, “The number of each type of account is not as important for a person’s score as simply having experience with both types of accounts, either currently or within the recent past.”

There are two take-a-ways from this quote for me.

First, it’s important to note that the number of different accounts doesn’t matter much. This makes a lot of sense since a lot of people probably don’t have more than one type of home loan, auto loan, etc.

Second, the quote stresses that what is most important is having “experience” with “both” types of accounts.

That’s important to me since it seems to imply that what’s most important is just having a mixture of both installment loans and revolving credit, since those are the two major different types of credit lines.

My ultimate take-a-way from this is that if you only have installment loans or only have revolving accounts, you probably won’t be able to achieve a perfect credit score but having a couple of each will take you far in this category. 

You can read more about credit mix here.

#4 Credit history is huge

Credit history may only make up 15% of your credit score, but it’s essential for obtaining a perfect credit score.

Credit Karma reports that a “2011 study by SubscriberWise, a credit reporting agency for the communications industry, found the average length of a credit history for someone with an 850 FICO score was 30 years.“

That tells you a whole lot about getting a perfect credit history — it’s just going to take time.

If you’re relatively new to credit and have accounts only a few years old, you’re probably going to struggle to get to the top and so I would not worry about getting a perfect credit score.

If it ends up happening great, but it’s not worth obsessing over when in reality you might be years away of obtaining it due to a lack of credit history.

#5 New credit can bring you down

When you apply for credit, you’ll typically see a drop in your credit score from the hard inquiry of a few points, depending on how high your credit score is.

So if you want a perfect credit score, you don’t want any recent inquiries on your credit report. 

Of course, not ever applying for credit would defeat the very purpose of achieving a perfect credit score in the first place.

But since the impact of hard inquiries usually diminishes after 90 days and falls off all together after one year, applying for new credit isn’t likely to drop you way below a perfect score if you’re already there. It would probably only be a matter of months until you’re back at a perfect credit score or near to it.

Tip: If you’re really focused on maintaining a perfect credit score then consider opening up small business credit cards since many of them don’t report to your personal credit report.

Opening those cards won’t show up as new accounts and won’t shorten your average age of your accounts, so it’s a great way to preserve your perfect credit score.

Perfect Credit Score FAQ

What is the perfect credit score?

The perfect credit score is 850 on both popular Vantage and FICO models, which have a range of 300 to 850. Other models may go up to 900.

How many people have a perfect credit score?

According to CNBC of the 232 million U.S. consumers who have FICO credit scores, about 1.6 percent, have perfect 850s.

How low does utilization need to be for a perfect credit score?

If you want to hit the perfect score, I’d shoot for somewhere between 2% to 4%.

How much credit history do you need for a perfect credit score?

A 2011 study by SubscriberWise found the average length of credit history for someone with an 850 FICO score was 30 years.

Do you need a perfect credit score for the best rates?

No, according to Informa Research the lowest rates offered on mortgage loans went to people with scores at or higher than 760. And, the lowest rates offered on various auto loans went to people with scores at or higher than 720.

Final word

Getting the perfect credit score is an ambitious goal but with questionable utility.

You’ll need to manage your credit score the normal way by making on-time payments, keeping your debt low, and avoiding too many new inquiries. And you’ll also have to have well-aged credit accounts and a mix of installment and revolving accounts to give yourself a good shot at a perfect credit score.

But in the end, just getting to about 760 is all that’s needed to reap the perks that come along with the perfect credit score in many cases.

How Does Becoming an Authorized User Affect Your Credit Score? [2022]

Becoming an authorized user can do wonders for your credit report but it can also do some harm if you’re not careful. Here’s a run down on how becoming an authorized user can affect your credit score.

How does becoming an authorized user affect your credit score?

Getting added as an authorized user can boost your score in some cases but it can also hurt your score if not done properly.

Keep reading below to find out everything you need to know about getting added as an authorized user.

The Basics

FICO determines your credit score in the following ways:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

Thus, becoming an authorized user can improve your credit score by doing these things:

  • 1) Lowering your credit card utilization
  • 2) Improving payment history
  • 3) Increasing the average age of accounts
  • 4) Diversifying your credit (this factor plays a very limited role).

1) Lowering your credit card utilization

In my opinion, the best (and quickest) way to boost your credit score with an authorized user is to lower your credit card utilization.

Your credit card utilization is how much of your current credit line you are using. So by getting added to a card with a low utilization, you can bring down your own utilization and boost your score.

2) Improving payment history

Another great way to improve your credit score with an authorized user is to boost your payment history. Payment history is the number one factor (35%) for your FICO credit score so it is extremely important.

This can be especially helpful because some banks, such as Capital One, will backdate the open date to the date the original account was opened.

This means that if the primary cardmember had 10 years of solid payment history, you can benefit from that by getting added to their account.

3) Increasing the average age of accounts

Your credit history is only 15% of your credit score but you can give it a nice boost by getting added to an old credit card that back dates. Look to banks that are known to backdate like Bank of America, Capital One, Chase, and US Bank.

4) Diversifying your credit

Credit mix only makes up 10% of your FICO score and does not carry a whole lot of weight. In fact, it is most relevant to people trying to obtain a perfect credit score.

Still, if you only have installment loans which are loans like student loans, car loans, etc., then getting added to a credit card could be a fantastic way to diversify your credit mix.

Maximizing the effect of an authorized user account

To maximize the benefits of being added as an authorized user, your goal should be to get added as an authorized user to an account that:

  • 1) Has as close to 0% utilization as possible
  • 2) Has flawless payment history and no negative reports
  • 3) Is older than your average age of accounts.

1) Has as close to 0% utilization as possible

The ideal credit card utilization is above 0% but still very low, likely around 5% or so. But as long as you can keep your utilization between 10 to 20%, you are probably doing okay.

If utilization is the major factor holding you back then you can expect to see a pretty substantial bump by getting added to someone who has a very low utilization.

2) Has flawless payment history and no negative reports

As talked about below, sometimes negative marks from the primary account holder will damage your credit score.

So when seeking out someone to add you as an authorized user you need to make sure that they have a squeaky clean payment history and that they will continue to make on-time payments.

Related: How Does Payment History Affect Your Credit Score?

3) Is older than your average age of accounts

If you have a very thin credit profile meaning that you don’t have a lot of accounts and they are very young then you want to find an account that has been around for a long time.

And remember, you also want to make sure that that bank will report and backdate the authorized user account. Otherwise, your average age of accounts will not benefit.

Weighing the factors

While the three factors above can help guide your decisions, you always need to keep in mind what factors matter the most for your credit score.

For example, if utilization is your sole problem and you can knock it down significantly by getting added as an authorized user, then that should take precedent over your average age of accounts.

For example, let’s say you have one maxed-out credit card with a $1,500 credit limit and that credit card is 5 years old. So your overall utilization is 99% and your average age of accounts is 5 years.

Now, let’s say you could be added to someone’s card with a $10,000 credit limit but the card is only sixth months old.

This will bring down the average age of accounts for you to around 2.5 years but it will knock your utilization down to 13%.

Since utilization carries way more weight in determining your credit score than your average age of accounts, it would make sense to jump on as an authorized user.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

How much can your score benefit?

How much your credit score can increase all depends on various factors that are at play, so it’s impossible to predict in any specific way.

Generally speaking, however, if you have a very thin profile, then bringing down your utilization and increasing your average age of accounts can have a substantial effect on your credit.

Anywhere from a 20 to 50 point increase is certainly obtainable, although YMMV.

Just don’t expect too much benefit.

The credit bureaus employ formulas to minimize the benefit to those who are solely trying to bolster their score with these tactics called “piggy backing.”

This means that you probably will start to hit a point of diminishing returns after being added as an authorized user to several credit cards.

And if it looks like you are engaging and suspicious activity to boost your score, that is certainly not going to help.

Make sure the new account is reported

Not all banks require you to provide a social security number when adding someone as an authorized user but it all depends.

American Express will usually ask for a social security number at some point while banks like Chase don’t.

If the person adding you is associated with you (e.g., you share the same address), then there may be a better chance for the banks to report it to the authorized user’s credit report but you should always follow up to ensure that it gets reported.

Authorized users and hard pulls

I’m not aware of any bank that conducts a hard pull on your credit when being added as an authorized user.

And it really wouldn’t make sense for them to do it — after all, you’re not liable for the payments in anyway so you couldn’t really pose a true risk to banks.

Although, if you ran up a crazy high balance I guess you could indirectly pose a threat to them but that’s another story.

Negative marks on the primary cardholder’s account

According to Credit Karma:

The VantageScore 3.0 model only includes positive information from authorized user accounts. On the other hand, the FICO model includes positive and negative marks from legitimate authorized user accounts…

There may even be differences based on the credit bureau policies.

For example, Experian may remove an authorized user’s account from the credit report if the primary account becomes derogatory.

Other bureaus like TransUnion and Equifax will likely report both positive and negative information.

Thus, you should expect for negative remarks on the primary cardholder’s account to affect your credit score.

They might not always count against you but I would just assume that they will, unless you know 100% for sure that they don’t.

So before you go requesting to be added to different credit cards do your best to get assurance that the credit history on that account is as flawless as possible.

Related: Understanding the Different Types of Credit Scores

Is the primary cardholder reliable?

Make sure you that the person adding you as an authorized user is not irresponsible.

If they end up maxing out the credit line that you’re added to, your utilization will go way up and your credit score will likely go way down!

Although you wont be personally responsible to pay the credit card bill, you will “pay for it” with a lower credit score.

Removing yourself as an authorized user

Usually, removing yourself as an authorized user is simple.

You contact the bank and tell them you need to be removed and they take you off. It is usually instant but may take a short while to show up on your credit report.

If it doesn’t show up as removed or if you want to expedite the process, simply file a dispute with the credit bureaus.

Just remember that your score might go down if you were relying on that account to lower your utilization, maintain a longer average age of accounts, etc.

Business accounts

Most, if not all, authorized users on business credit card accounts will not be reported to your personal credit report.

Therefore, being added to a card like the Chase Ink Business Cash, should do you no harm but also no good in terms of your personal credit report.

Authorized user FAQs

How long does it take for an authorized user account to show up on a credit report?

When you become an authorized user on a credit card, the credit card should show up on your credit report within a month or two.

What is the minimum age to be added as an authorized user?

The minimum age is determined by the bank. 18 is a common minimum age but some banks allow younger authorized users to be added.

Will negative marks on the primary cardholder’s account affect my credit score?

Different credit models treat negative marks on the primary card holder’s account differently. Equifax and TransUnion will likely report both positive and negative information but Experian may not report derogatory marks.

How much can your score go up from being added as an authorized user?

The amount your score can go up depends on the factors that are holding you back and is nearly impossible to predict but in some cases you can expect a 20 to 50 point bump if you get added to the right account.

Will lenders know if my account is an authorized user account?

Yes, typically your credit report will display your responsibility as an authorized user which will let the lender know you are not the primary cardmember.

Is there a hard inquiry for getting added as an authorized user?

In most cases, there should not be a hard inquiry when you get added as an authorized user but you should check with the bank beforehand.

Final word

As you can tell, there are several ways that becoming an authorized user can benefit your credit score. It usually boils down to what factors are holding back your score and how that authorized user account can help improve those factors.

So by strategically seeking out an authorized user account, you can address the needs that are holding you back the most and see the most improvement.

Does Getting New Credit Cards Hurt Your Credit Score?

One of the first questions that people tend to have before jumping on new credit cards is whether or not their credit score is going to be hurt if they apply for multiple credit cards.

The answer to this question can hinge on a number of factors like prior established credit history, payment habits, and a few other things. However, generally speaking, getting approved for new credits will not hurt your credit score and will usually even improve it!

This article will walk you through why getting new cards should improve your credit score.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Utilization and Payment history (65%)

The great news for people who want to apply for a lot of credit cards is that the primary factors that affect your credit score are your: 1) payment history and 2) utilization.

In fact, these factors are estimated to account for 65% of your credit score! For responsible credit card consumers, opening up new credit cards will only allow these factors to continue to benefit your credit score over time and here’s how.

Payment History (35%)

Payment history is the most important factor in determining your credit score.

If you have paid all of your car loans, student loans, previous credit cards, etc. on time, then you’re in luck because your payment history will only continue to benefit your score over time as you add more cards to your credit portfolio.

If you have some late or missed payments then it’s going to be more of a headache for you. You’ll generally have to wait seven years for late payments to be removed, though you can always try your luck with goodwill letters and contacting your creditors.

The good news is that if you can get a few approvals then your monthly payments on these new cards can help “dilute” your negative payment history and bring your payment history closer to 100% satisfactory a lot quicker.

Since payment history is so important to your score you need to realize the importance in remembering to always make timely monthly payments.

As mentioned, maintaining responsible payment habits will increase your score over time but there’s always the risk that with more payments to remember you might be more susceptible to missing a payment (just something to think about).

Still, the important take-a-way is that the most important factor for your credit score, payment history, will be positively affected as you open up new credit cards and responsibly make your payments on time.

Utilization (30%)

The second most important factor for your credit score is utilization (how you pay off your credit card bills). This is also known as your “credit-to-debt” ratio. You can figure out your utilization by dividing your outstanding balance by your overall credit limit. For example, if you have a credit limit of $30,000 but have $10,000 worth of debt, then you divide 10,000 by 30,000 and you get a utilization score of 33%.

There are two things looked at with this score: your overall utilization and the specific utilization on each card.

Overall utilization

This considers every line of revolving credit that’s currently open. This percentage needs to be as low as possible. Generally, under 10% is thought to be excellent but I keep mine at about 4% to keep my score as high as possible and to avoid paying interest on my accounts.

Opening up new credit cards can create a snowball effect that benefits your utilization and ultimately your credit score. Here’s how this snowball effect works.

First, it becomes significantly easier to keep your utilization low once you get approved for additional cards. Let’s say you had one credit limit of $5,000 and $1,000 of outstanding debt. Well, your utilization would be 20%. If you could only get approved for one card with an additional $5,000 credit limit you could cut your utilization down to 10%, increasing it from “good” to “excellent.”

This decrease in your utilization then leads to a bump in your credit score but the effect doesn’t stop there.

When it’s time for you to apply for your next credit cards the banks will see: 1) an improved credit score and 2) that other banks found you to be a low credit risk since they offered you additional credit.

This will lead to additional approvals with often even higher credit limits, which of course leads to more easily maintained lower utilization. So now your $1,000 of debt may only account for 5% of your utilization or potentially even less.

The cycle then repeats itself and goes and on, continuously lowering your utlliization, building up your payment history, and ultimately increasing your credit score.

Specific Utilization

Your overall utilization is  more important than the specific utilization of each card but having a high utilization on a single card can still hurt your credit score, especially if you don’t have many credit accounts. Your specific utilization for each card needs to be 30% or lower for optimal results, although there’s usually more wiggle room for specific utilization than overall utilization.

Where having a high utilization on a single card can really hurt is with specific banks. Some banks may not want to extend you additional credit if you have a high utilization on a single card issued by them so it’s always a good idea to avoid having a maxed out (or close to maxed-out) card even if you don’t think it’s significantly damaging your score.

Getting new credit cards can help you indirectly with your specific utilization because some banks like Chase will allow you to transfer credit lines from other cards. So if you were near 50% on a Chase Freedom card and got approved for a Sapphire Preferred, you could also transfer some credit from the Sapphire line to the Freedom line to decrease the utilization.

The Takeaway

The takeaway on this is that at least 65% of what determines your credit score should be positively affected by getting new credit cards. This means that on average the benefits of getting new cards will outweigh the negative effects and your credit score should rise in the long-run.

We can’t discuss the good without the bad. Even though the benefits to opening up new credit cards outweighs the negative factors, here’s a look at some of the factors that can hurt your score when applying for new credit cards.

Two factors that will negatively affect your score

The things that are going to hurt you are: 1) credit history/average age of accounts and 2) new accounts.

Credit history/Average age of accounts (15%)

Your credit history aka average age of accounts (“AAoA”) is the factor most detrimental to your score when getting new credit cards. Applying and getting approved for new credit cards will (almost) always bring down your average age of accounts and thus work to counteract the benefits to your credit score.

How much damage will be done depends on a lot on what your current credit portfolio looks like. If you have some established accounts from years ago, then a new credit card will only have a minimal impact. If you have a thin profile and do an “app-o-rama” where you apply for 3-5 cards at once, you’re AAoA will take a serious hit and lower your credit score, at least temporally.

Thus, while a single new credit card shouldn’t hurt you too much (if at all), it all depends on your personal credit history in terms of how much damage will be done with multiple cards.

Related: Does Closing Your Credit Card Hurt Your Credit Score?

What can you do to limit the damage?

If you have a thin credit report, there’s not too much you can do to protect your average age of accounts from being hurt once you start applying for tons of new credit cards. However, there are a few things that can help.

Adding yourself as an authorized user to older credit cards. The bad news is that this will often show up as a new account on your credit report. Still, adding yourself to one or two old cards can provide you with a decent boost.

The second way is to utilize small business credit cards. Most business credit cards do not show up as new accounts on your personal credit report and so they won’t lower your average age of accounts.

New Credit (10%)

The second way applying for new credit cards can negatively affect your score is buy impacting your new credit category. New credit accounts for 10% of your credit score. The main factors in this are hard-pulls and the opening of new accounts.

Hard-pulls

Contrary to what many believe, hard pulls aren’t a huge knock on your credit. Usually, a new hard-pull will bump your score down 2-5 points but only temporarily. The negative effect of a hard-pull tends to diminish within about 60 to 90 days so they don’t really present long-term trouble for your score.

New Accounts

New accounts can hurt your score a little more, however.

One way credit cards hurt your score is if you pursue many new lines of credit in rapid succession. This makes you look desperate for credit to banks and therefore more of a credit risk. Getting one new card shouldn’t look bad but getting 5 cards in one week will cause some damage to your score. Thus, if you plan on pursuing multiple cards it makes sense to be as patient as possible when planning out your applications.

Note: if applying for a mortgage loan or car loan you need to be extra sensitive to the effect of new accounts on your credit.

An additional way that new accounts damage your score is that they lower your average age of accounts. Again, this is not a major concern for people only considering applying for a small amount of cards, especially if they have an established credit history.

One thing to keep in mind if you’re planning on applying for several cards is that it is not uncommon for your credit score to dramatically rise and fall during the process. As hard pulls, new accounts, new utilization percentages, and payment history change, they are all calculated in unique ways and given different weight at different times.

Your credit score could dip 30 points in January and then rise 40 points in February, only to fall 8 points in March and rise 2 points in April. The important thing to remember is that if you responsibly manage your payment history and utilization (worth 65%) your score should always rise in the long run.

Credit Mix: A neutral factor? 

Credit Mix (10%)

Credit mix is considered to be the least important factor for your credit score, so I’m just including it for the sake of completion.

Credit mix considers both the number of credit accounts and the variety of them. For most people new to credit cards but currently paying on an auto loan, student loans, mortgage, etc., their score should benefit with new credit card accounts.

However, in the end, this factor probably isn’t going to affect your credit score too much either way, so I wouldn’t make it a deciding factor when choosing whether or not to apply for a credit card.

Conclusion

At least 65% of what affects your credit score should be benefited with new credit cards. 10% may or may not be benefited, and only a remaining 25% may be negatively affected by pursuing new cards.

Therefore, on average, there’s more benefit than harm done to your credit score when you apply for new cards and so long as you’re responsible, you shouldn’t worry about damage to your credit score when applying for new credit cards. 

Why Did My Credit Score Go Down After Opening Up A Credit Card?

A lot of people are disappointed to find out that their credit score has gone down after opening up a new credit card. In some cases the credit score goes down twice, once directly after an application and then again sometime around a month or two later. This causes a lot of worry but it’s completely normal when this happens and it’s only temporary. Here’s what’s likely going on when this happens.

How is a credit score determined?

To understand what’s happening, you first need to have a good grasp on how credit scores are determined. There are a number of different types of credit scores but the one most commonly used is the FICO model. Your FICO credit score is determined by the following categories:

In this instance, the biggest factor that will be negatively affected is the new credit category that makes up 10% of your score. New credit looks two major things affected here: recent inquiries and new accounts opened.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Inquiries

When you apply for a line of credit, the lending institution will typically do a hard pull on your credit report. (I say “typically” because some banks such as American Express do not always conduct a hard pull on your credit report.)

For many, this hard pull results in about a 3 to 5 point drop in your score. But that is just the average drop you would typically expect.

For lower credit scores or for people with thin credit profiles this drop could be much higher (even over ten points). This is especially true if you have back to back inquiries within a matter of days or weeks.

For those with more established credit reports (or people with perfect credit scores) the drop could be negligible. I’ve even heard reports of people not seeing a drop at all in their credit score, though that seems to be pretty uncommon.

Most of the time, the drop in your credit score from a hard pull will be instant. In fact, I have even seen a hard inquiry notification show up before a credit card application is finished processing.

If you check your credit score right before and after you submit an online application for a credit card you will likely see that your score has already dropped. The good news is that the negative effect of these inquiries will diminish in roughly 60 to 90 days.

At that point your score should start to recover or already be completely recovered from the hard pulls. After 12 months, the hard pulls will no longer affect your FICO score and after 2 years the inquiries will disappear entirely from your credit report.

A lot of people are aware of the first drop caused by hard inquiries, but I still get emails from people who are concerned when their score inexplicably drops a second time, usually around a month later. There is often a simple explanation for this.

Related: How Do Credit Inquiries (Hard Pulls) Affect Your Credit Score?

New accounts opened

In addition to hard pulls, new accounts will also often drop your score but it may not be instantly. this is because some banks take a few weeks (or even months) to report a new account to your credit report. For example, many times it takes approximately 45 to 60 days for an American Express account to appear on your credit report.

When that new account is reported, it brings down your credit score even more. Just how much it goes down depends on factors like your credit history and how many other recent accounts you’ve opened.

If you have a thin credit profile and you were to open more than one account at one time then you could see a pretty significant drop in your credit score that happens a month or so after your initial drop from the hard inquiries.

Some people feel the need to panic when this happens but they have to remember that their score will eventually go up as a little bit of time goes by.

A credit score will jump up even quicker if those new accounts also helped bring down that person’s credit card utilization and it’s possible that within 120 days you could see a score make a dramatic jump back up so that the credit score rises to a point much higher than it was before that first hard inquiry brought it down.

Related: Does Getting New Credit Cards Hurt Your Credit Score?

Other factors

Sometimes there is not a clear explanation for why your credit score has dropped. It’s possible that after a new account appears on your credit report there is no change to your score or perhaps even your score goes up only to go down a month or two later.

In some cases you may just have to chalk up the change to complicated algorithms that are working in the background. But other times you might just need to look a little bit closer to find the culprit.

It is possible that applying for a new card and opening up a new account could affect other factors in your credit report (besides new accounts) that have an impact on your score. For example, your new account might be affecting your utilization in a negative way and you may not be realizing it.

If you still don’t know what is going on my recommendation would be to just wait 60 to 90 days to see what happens to your credit score. (Obviously, you also want to verify that there are no errors on your report that could potentially explain the drop in your score.)

Also, make sure that you are checking the same type of credit score and the same model. There are different types of FICO scores and it is possible that your score could drop if you are viewing an older or newer version.

Related: How Accurate Are Credit Karma Credit Scores?

Final word

If you’ve just opened up a credit card or two and you’ve seen your credit score take two different drops back to back, don’t worry — this is completely normal. Just wait it out for a couple of months and make sure you are responsibly using your credit cards and you will eventually see your score jump back up very soon.

How To Remove Student Loan Late Payments From Your Credit Report

This is the story of how I was able to remove student loan late payments from my credit report. 

As soon as I found out the amazing travel benefits created by some of the best travel credit cards I was anxious to jump into signing up for new cards and redeeming miles for some amazing trips.

Unfortunately, living abroad in the UK had caused a rift in communication between myself and one of my student loan lenders and I wasn’t aware that my in-school deferment had not been applied.

So one day, as I’m getting ready to start applying for some credit cards, I go to and check my credit score and I see it’s in the 500s and showing SIX late payments! (Six loan accounts were considered separate for payment purposes.)

Thus, my hopes for getting any kind of worthwhile credit card were pretty much gone and I started to deal with the realization that it would take about 7 years for these negative marks to be removed.

There had to be a way to remove student loan late payments…

I figured that there had to be something that I could do and so I started to do some research and slowly but surely started to gain some hope. The following account is how I successfully used the FTC Advisory Opinion on Section 623(a)(2) to get six late payments removed from my credit report.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

First Step: Goodwill Letter

The first thing to know is that these creditors are legally obligated by the Department of Education (DOE) and Fair Credit Reporting Act (FCRA) to report these late payments and are not supposed to change what they report unless what they reported was inaccurate.

So don’t go into this with the mindset that the creditors should just change their mind and do as you ask. With that said, the first step to trying to get these late payments removed is to write a goodwill letter, which is basically just a letter where you contact them and ask them to be sympathetic or understanding to your cause and offer you a second-chance.

If you had a traumatic event like a death or illness take place around that time, this is something you probably want to bring up. Still, some have had success with just “fessing up” and admitting that they screwed up.

If you don’t know what a goodwill letter is or what it should look like just do some basic Google research… there are tons of examples out there.  But for your reference, I’ve included the goodwill letter I sent below.

My Goodwill Letter

To Whom It May Concern,

My name is Daniel (DOB: XX/XX/XXXX) and I have an account with XXXX loans (ref #XXXXXXXXXX) .

I recently had an informative phone conversation with a representative of XXXX and was explained why I had late payments reported on my credit score. Back in the fall of 2014, I was under the impression that a notice of deferment was being sent to my loan providers and that I would not have to worry about my existing XXXX loans until the fall of 2015. However, this notice did not arrive to XXXX until December 2014, over 60 days after I had a payment due in September. As a result, the late payment was reported to my credit score.

Letters from XXXX were sent out to my address in XXXX. However, I was enrolled in school abroad during this time and I had issues with my mail forwarding. On top of that, my email and phone number were not updated with XXXX Thus, I was not receiving any communication from XXXX. (I have since updated both my phone number and email address).

I realize that this was not a mistake made by XXXX; but rather, a mistake on my end for not ensuring that the notice of deferment was sent and received promptly. However, after seeking some advice on how to go about the situation, I was informed that creditors, such as XXXX have discretion to remove negative reports in certain instances. I am hoping that XXXX can understand that while I failed to submit a timely payment, I was enrolled full-time and thus eligible for a deferment.

With that in mind, I respectfully request that XXXX consider removing the late payments reported to the credit bureaus. I am fully committed to maintaining prompt payments and am open to enrolling in auto-payments if such an option would help with the requested removal.

Please let me know if you need any information from me.

Thank you for your time and consideration,

The Response to My Goodwill Letter

The goal of the letter was to show that I was: 1) taking responsibility of the late payment and 1) that I was open to do what I needed to do to assure them that it would not happen again. Unfortunately, I was not successful.

The goodwill letter actually backfired on me a bit. They sent me a response back saying that since there was no mistake on XXXX’s account and that I had admitted fault they were not allowed to remove the late payments from my report.

I was very bummed and kind of regretted even sending in the letter since now it looked like I may have made matters even worse by admitting fault on the record. Yet, I wasn’t quite ready to give up and I decided to do a little bit more research just in case.

Related: How Does Payment History Affect Your Credit Score?

FTC Advisory Opinion on Section 623(a)(2) of the FCRA

And that’s when I stumbled upon the FTC advisory opinion on Section 623(a)(2) of the FCRA which changed everything.

This advisory opinion basically states that a student loan provider is required to both update and correct information provided to credit reporting agencies when that information is provided.

There’s dispute as to whether this means removing late payments entirely from a credit report or merely to updating that the report to reflect that a payment status is no longer delinquent or past due.

There’s a huge difference between the two because in the latter situation your payments may no longer show that they are currently delinquent but in the former scenario your payments are completely removed from your credit score.

Thus, I changed my strategy from employing the nice-guy, apologetic tone (“I screwed up and am sorry”) to going with a more aggressive and authoritative style and actually asserted that this loan provider was in violation of Section 623(a)(2) by not removing my late payments.

The below is the letter that I responded to the loan provider with. This time I sent the letter via certified mail.

August 25, 2015

My Name and Contact Info

Loan Provider Contact Info

Re: Late Payment Removal/  Ref # XXXXXXXXXX

Dear Sir or Madam:

This correspondence is in response to the XXXX August 17, 2015 letter I received regarding my goodwill request to have late payments removed from my credit score report. In the letter I was told that such reports could not be removed due to regulations promulgated by the DOE and the FCRA. Contrary to these assertions, by failing to update previously reported information, XXXX is in violation of Section 623(a)(2) of the FCRA.

I have attached an FTC advisory opinion which interprets Section 623(a)(2) of the FCRA. The issue posed in the advisory opinion is how a lender is to handle a situation when subsequent information updates a report that was allegedly accurate when it was made but no longer is accurate in the present time (i.e., the identical situation I am currently in).

The advisory opinion states that the Section 623(a)(2) of the FCRA addresses the duty to correct and update information by “furnishers,” or persons who furnish information to consumer reporting agencies (“CRA”) such as credit bureaus. In particular, this section requires a person that “has furnished to a consumer reporting agency information that the person determines is not complete or accurate” to “promptly notify the consumer reporting agency of that determination” and provide any information needed to make it complete and accurate. Thus, on its face, this provision requires a furnisher to provide corrected or updated information to the consumer reporting agency that it had reported to originally. This duty extends to all student loan accounts reported to CRAs, regardless of whether they were accurate at one point, because the section requires the furnisher both to “update” accounts as well as to “correct.”

XXXX representatives told me that because the delinquent payments were accurately reported in November of 2014 that any subsequently initiated deferments would not allow for XXXX to update reports to CRAs to show that the payments were not late and actually in deferment. However, Section 623(a)(2) clearly shows that the reports must be updated/corrected regardless of whether they were accurate at one point.* 

All of my XXX accounts that were part of the September 2014 late payments show deferment status effective as of “9/15/14.” Also, I was enrolled full time before any payment in September became due. Therefore, my credit reports do not currently accurately reflect previous payment statuses with XXXX, both as they actually existed and as XXXX has recorded them. I am thus requesting that in compliance with Section 623(a)(2) of the FCRA that the six accounts showing a 60-day late payment in November 2014 be updated and/or corrected and removed.

In the event that these reports are not immediately updated to accurately reflect my payment status during November 2014, I intend on filing disputes with each credit bureau in addition to official complaints with the FTC, CFPB, BBB, and pursue other legal routes if necessary.

Please respond within 14 days of the date of this letter with an update to this matter.

Very Truly Yours,

[*Footnote: For the record, I do not agree that XXXX ever “accurately” reported the status of my loans. Since my July 28th email, I have discovered that all other loan providers timely processed the deferment leaving me to suspect a processing error on behalf of XXXX. In addition to the possible Section 623(a)(2) claim, I intend on disputing the processing of my deferment if need be.]

As you can see, the tone was much different from the email I had previously sent. There are a few points to consider about my situation and the letter I sent.

  • I sent the letter as an attorney (e.g., I signed “Name, Esq.”). That representation in addition to the attaching the Advisory Opinion and supplying my own quasi-legal analysis of that opinion could’ve played a role in lending more gravity to my argument.
  • The footnote above was meant to let them know that I no longer suspected the error to be my mistake (as they reiterated in their original response to my goodwill letter). Since other loan providers had timely processed my deferral (which was not sent from me) I thought I had a good argument that they were the outliers and likely the party who made the mistake.
  • Keep in mind this was for an in-school deferment — it was indisputable that my loans qualified for deferment. I say that because there may be some differences if you are trying to argue that your loans should’ve been in forbearance or some other status allowing for delayed payments. I don’t know that for sure, however. It may not make a difference but that is just something I’m saying to take note of.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

The Response to the Advisory Opinion Letter

In a couple of days I received a letter via snail mail that upon further consideration my payment history was being revised!

Within a few days I logged in to check and my credit report for another matter and noticed it had shot way up — they had removed my late payments!

And what was great was that my credit score had made an astronomical leap. The removal of the late payments coincided with me paying of all my credit card debt and a slew of hard-pull inquiries dropping off my report so my credit score jumped from the 500s to the 800s!

I couldn’t believe the change and I was on my way to getting some pretty great credit cards.

When you research the authority of Section 623(a)(2) and this FTC advisory opinion you’ll come across a lot of varying accounts and opinions. There are a lot of accounts of using this opinion not working and some others who have had success like I did.

Don’t get too discouraged by the negative accounts. I almost never sent in my second letter because it seemed like a wasted effort but thank God that I did… I don’t even want to think about where my credit score would still be right now if I hadn’t.

If you have some late payments that hit while you were supposed to be in an in-school deferment status or in forbearance then I definitely recommend giving this method a try.

Try the good-will letter first and if that doesn’t work then you’re next step could be using the FTC advisory opinion Section 623(a)(2). Remember, there’s no harm in trying.

Please note: I no longer offer services to assist with these issues and due to an extremely high volume of requests, cannot respond to emails on this subject. 

How Long Do Hard Inquiries Stay on Your Credit?

A very common question that I see come in often is: how long do hard inquiries stay on your credit?

It’s an important question and understanding both the short-term and the long-term impact of a hard inquiry is very important.

Here’s a rundown of everything you need to know about hard inquiries, including how long they remain on your credit report.

Credit score basics

Most lenders use the FICO model, so that what I’ll use in this article.

Your FICO score is determined based on the following categories:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

You can find out more about how your credit score is determined here. 

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

The “New Credit” category

As you can tell by the breakdown above, payment history is the #1 factor that affects your credit score. Second is credit card utilization (which is how much of your current credit limits you are using).

So where do hard inquiries fall?

Hard inquiries fall into the “New Credit” category which accounts for 10% of your score. Other factors that are considered in this category are:

  • How many new accounts you have
  • How long it’s been since you opened your last account

So it’s important to remember that hard inquiries only affect a portion of 10% of your total credit score.

That’s not a lot but that doesn’t mean that you should disregard the impact of hard inquiries.

While the numerical impact may be minimal, having too many of these on your credit report can make getting approved for credit and good interest rates very difficult.

So it is vital that you properly manage the pace at which you incur hard inquiries.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

How long do hard inquiries stay on your credit report?

Hard inquiries will remain on your credit report for two years.

On occasion, hard inquiries will not drop off your credit report or they may take extra long to drop off. If for some reason you see a hard inquiry on your credit report that is over two years old you should dispute/report it as inaccurate ASAP.

How much do hard inquiries affect your credit score?

Overall, a hard inquiry will usually drop a credit score by 2 to 5 points.

There are some additional things to consider about this.

Good credit scores are affected less

The more established your score is the less the impact a hard credit inquiry will have.

Let’s say that you’ve got a credit report with 100% payment history and multiple established credit lines with ages over 10 years.

In that case, a hard inquiry will have a minimal impact on your score of maybe only a couple of points.

Some even say you can even get away with no damage to your score at times.

Still, I would generally expect there to be some type of dip in your credit score after getting a hard inquiry even if you have a superb credit report.

Bad credit scores are affected more

Let’s say you have a very weak credit profile. Maybe you have a low credit score and little to no credit history.

If that’s the case, then the overall impact from the hard inquiry may be much worse.

It’s possible that your score could drop 10 points or more. This can be very discouraging to people trying to build up their credit score but as shown below the negative impact is only temporary.

Lots of new inquiries will make it worse

Finally, let’s say that you’ve just opened up a hand full of credit cards over the past few months.

In that case, you would have several back-to-back hard inquiries.

When you get an additional hard pull, you’ll probably feel the sting of that hard pull much worse than someone else with fewer inquiries.

And it makes sense that this would be the case.

If you are aggressively applying for credit lines there is a good chance that you are in a tough financial position. Credit card enthusiast aside, most people don’t go around applying for multiple credit lines when everything is gravy.

Therefore, banks will be more worried about lending to you and that is why the credit score drops.

How long do hard inquiries affect your credit score?

The short-term

Hard inquiries begin to lose much of their negative impact after about 60 to 90 days.

This is why some people wait 90 days in-between applying for multiple credit cards.

If you are trying to apply for a number of credit cards in order to maximize your rewards, then I would recommend to wait 90 days between applications.

The long-term

Hard inquiries will only affect your FICO credit score for 12 months.

FICO discounts hard pulls entirely after 12 months, so if you find your credit score lower than you think it should be, you can rule out hard pulls as the cause after one year from your latest hard pull.

Banks still looks at these

One extremely important thing to know is what while FICO may not factor in your inquiries that are over a year old, banks will.

Many banks are interested in seeing how many new accounts and how many new inquiries you have over the past two years.

If you’re applying for a credit card, you might have to try to explain why you have so many credit inquires.

The reason is that there are statistics that show that people with many inquiries might be less responsible and more prone to bankruptcy.

So just because hard pulls will lose their affect on your FICO score after 12 months, that does not mean that you’re in the clear with every financial institution.

Can I avoid hard pulls when applying for a credit card?

It is possible to avoid hard pulls when applying for credit cards. Once upon a time you could utilize some thing called the shopping cart trick but that doesn’t seem to be as reliable as I once was.

Some issuers such as American Express will not always perform a hard pull so by applying for their credit cards you can sometimes avoid the hard inquiry.

If you are concerned about hard inquiries then you can always do a little bit of research to see what credit bureaus are pulled by banks when you apply for credit cards.

By knowing which credit bureaus are pulled, you can strategically apply for credit cards while minimizing the impact from the hard inquiries.

FAQs

How much do hard inquiries affect your credit score?

A hard inquiry will generally drop a credit score by 2 to 5 points. However, if you have a weak credit profile or have multiple recent inquiries the negative impact could be much worse such as over 10 points.

How long do hard inquiries affect your credit score?

Hard inquiries begin to lose much of their negative impact after about 60 to 90 days. However, they will only affect your FICO credit score for 12 months.

How long do hard inquiries show up on your credit report?

Hard inquiries will remain on your FICO credit report for two years. However, they will only affect your FICO credit score for 12 months.

Final word

Hard inquiries stay on your credit report for two years but lose their impact after 12 months. But you still need to be mindful of how these hard inquiries will make lending institutions view you as a credit applicant.

How to Raise Your Credit Score by 200 Points [2021]

Are you trying to improve your credit score by 200 points or more? Are you wondering what is actually possible and realistic in terms of improving your credit profile?

Well, I once increased my credit score by 200 points in a matter of months and so I am uniquely qualified to tell you how it can be done.

It’s definitely not something that everybody can do but there are different steps you can take to at least come close to your credit goals.

In this article, I’ll break down everything you need to know about boosting a credit score by a couple of hundred points.

How your credit score is calculated

Before jumping into the different ways to bolster your credit score and credit report, it helps to have a general understanding of how your score is determined.

FICO determines your credit score in the following ways:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

I’ll show you how each of these factors can be improved below but the key take away is to note that not every factor is weighed the same (or even close to the same).

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

The strategy

The trick with raising your credit score is that you have to strategically address the deficiencies in your credit score in order to see maximum benefit.

For example, if payment history is dragging you down and you are focusing on getting your utilization down from 30% to 5%, that is only going to do you so much good.

There is rarely a “one size fits all” approach to improving your credit so you want to take each factor and analyze it individually to see where your best opportunities for improvement are.

Factors to improve your score by 200 points

Below are the factors that you want to think about when trying to improve your credit score by a large amount. You won’t need to address all of these factors but it will help to know which ones to pursue and how much they can benefit your score.

Payment history

Payment history is the number one factor that determines your credit score.

The harsh truth is that in most cases if you have missed a payment or multiple payments and if that is the main blemish on your credit report, there may be nothing you can do except wait for that negative mark to diminish.

Late payments will take seven years to disappear from your credit report which sounds very depressing but the good news is that the full negative impact from the late payment will begin to diminish much quicker than seven years.

How badly a negative payment will affect you depends on a few factors.

One major factor is how late the payment was.

A late payment of 30 days is much less worse than a late payment of 90 or 120 days. Also, having one isolated late payment is not as bad as having multiple late payments.

So if you have several late payments and some of those are 90 days or more, you will need to keep your expectations realistic because your path to a 200 point increase is going to take much more time.

Another aspect to consider is that different credit models will penalize you differently for late payments.

The most recent model known as the FICO 10 increased the penalty for late payments but that model will likely not be used widespread for a while because it is so new.

If you don’t want to just “wait out” the effect of your negative payment and want to be proactive, one of the first things that you can do is send a goodwill letter.

This is basically a letter that just asks the entity that reported the late mark to be sympathetic and remove the late payment.

Many times this is a “Hail Mary” approach because many businesses will not remove the late payment. But because it is so easy to draft a goodwill letter and to send it off it is usually recommended to give it a shot — you never know if luck might be on your side.

Another approach is to do some research of your own to see if there is any argument that your late payment should be removed.

I did this back when I had late payments removed from my credit report for student loans. Admittedly, I have a background in law so this was more practical for me but I don’t believe you need to go to law school to attempt it.

I was able to find some regulations that I believed called for my late payments to be removed and I sent a firm letter to the financial institution and they ended up removing the late payments.

This helped catapult my score and it is the main reason I was able to increase it by over 200 points.

In some cases, you can take a more aggressive approach and hire an agency or an attorney to contact the business/collections and request the late payment to be removed or negotiate some type of deal.

I’ve personally done this with success in the past.

It required my client to pay a portion of the outstanding payment and the collections agency agreed in exchange to remove the late payment from the credit report.

This can be a very risky approach for a couple of reasons.

First, you need to have all of these things in writing because it’s possible a shady collections company could take your money and simply not remove the late payment.

Second, there are a lot of people out there who will happily take your money in order to improve your credit report but they may not always have the expertise or the skills to get late payments removed.

Others might even resort to somewhat unethical tactics to get the late payments removed.

So I would be very cautious about paying anyone who is promising that your late payments will get taken off your credit report.

Utilization

The easiest way to increase your credit score by a substantial amount is to reduce your utilization.

Credit card utilization is also called your credit to debt ratio and it looks like at how much of your current credit lines you are currently using.

So for example if you have $10,000 in total available credit and you are using $3,000 of that, your utilization is 30%.

This factor makes up 30% of your credit score so if it is the main factor holding you back, simply paying down your credit cards can be the only step necessary to see a huge boost in your score.

Typically, I recommend getting your utilization down to somewhere around 5% if possible although just getting it to 30% can do wonders for some people.

You don’t want it to hit 0% because in the eyes of lenders you look like someone who does not use their credit which means you may not be as experienced in managing it.

So if you are trying to optimize your credit score try to keep your utilization around 1% to 5% by paying your bill off at the right time.

A fast and easy method for increasing your utilization is to get added as an authorized user to someone else’s account.

If that other individual is responsible and you can trust them to not miss a payment, and they have a high credit limit, your credit score can benefit a lot from them.

Another solution is to do a balance transfer to a business credit card that does not report to your personal credit report.

This will allow your credit card balance to essentially disappear, thus boosting your utilization instantly.

Related: How to Improve Your Credit Score Fast

Credit history

Another way that getting added as an authorized user can help boost your credit score is to lengthen your credit history.

If you only have very limited credit history such as one credit card that has been open for six months, you could get added to an established credit card that has been around for years or even decades.

This would help dramatically increase your credit history but there are some caveats.

First, credit history is only 15% of your credit score so it is not a super influential factor. Payment history and utilization are far more important.

Also, the most important factor for credit history is the age of your oldest account so if your oldest account is very young there is only so much you will be able to do.

You could still go the authorized user route in that case but credit models have ways to decrease the benefit to authorized users, so the benefits you gain from getting added as an authorized user will hit a ceiling at some point.

Related: Does Closing Your Credit Card Hurt Your Credit Score?

New credit

The new credit category makes up 10% of your score, and it looks at two major things: recent inquiries and new accounts opened.

Typically, a hard inquiry will only drop a credit score around three to five points. But if you have a lower credit score, that drop could be much more significant.

This is especially true if you have multiple hard inquiries.

So it is paramount that if you are trying to increase your credit score, you need to avoid applying for a lot of credit because those inquiries could do a number on your score.

The other factor is new accounts opened. You’ll want to limit the number of new accounts if you are trying to bump your score up by 200 points.

One thing to note is that in some cases you will need to open up new accounts in order to begin establishing your credit history and building up your credit profile.

So if you are trying to increase your score by 200 points in the long run, then applying and opening accounts makes sense and you will just have to deal with the temporary drop knowing that it’ll pay off in the long run.

Related: Why Did My Credit Score Go Down After Opening Up A Credit Card?

Credit mix

Credit mix looks at how diverse your different credit lines are. There are two major types of credit lines: installment and revolving credit lines.

To optimize this category, you would want to have a mixture of something like credit cards and installment loans which include auto loans or home loans.

There are a couple of considerations to think about with this category though.

First, this only makes up 10% of your credit score and is considered the least important factor. Often, the only people who truly care about this factor are those striving for something like a perfect credit score.

Second, the consequences of obtaining some of these loans are pretty high because they typically are higher amounts that require more long-term obligations.

So you definitely don’t want to go rushing into obtaining loans just to benefit your mixed credit.

For those reasons, I would make mixed credit the lowest priority when trying to bolster your score a couple of hundred points.

FAQs

Is it possible to increase your credit score by 200 points?

It is possible to quickly increase your credit score by 200 points but it is not easy and you may have to rely on a little bit of luck. For most people, increasing their score by 200 points is a more medium to long-term goal.

Should I pay someone to get late payments removed?

Getting late payments removed from your credit report can be extremely difficult and so you should be cautious about paying anybody who makes promises about removing late payments. With that said, it can be done.

What is the easiest way to improve my credit score?

If utilization is holding back your score, then paying down your credit card debt is the easiest way to increase your score.

Final word

Improving your credit score by 200 points is usually a medium term to long-term goal depending on the steps you take and the factors that need to be addressed.

However, in some cases you might be able to increase your credit score by 200 points in just a month or two like I did. It might require a little bit of luck and a lot of research but it can be done.

Does Income Affect Your Credit Score? [2021]

A lot of people wonder whether or not their income affects their credit score. The answer is a little bit more complicated than a straight “yes” or “no” since there may be indirect effects on your score and people are often asking this question as it relates to pursuing some form of credit.

Below, I’ll dive into the details.

Does income affect your credit score?

Your credit score is not directly affected by your income but income definitely comes into play when pursuing and obtaining credit.

Credit scores explained

As I further explain in my beginner’s guide to credit scores, your FICO credit score is determined in the following ways:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

As you can see, there’s no category where income fits in.

“Income isn’t even on your credit reports so it cannot be considered in credit scores because credit scores only consider what’s on your credit reports,” John Ulzheimer, formerly of FICO and Equifax stated to CNBC.

“In fact, no wealth metrics are factored into your credit scores.”

Why is that?

Well, lenders are more concerned about your ability to borrow funds and pay them back than how much money you make.

Just because you make a certain amount of money, that doesn’t mean that you’ve established a track record of paying your bills on time.

In fact, you might make a lot of money but have little to no experience in managing credit lines and in that case, you could pose a much higher credit risk than someone making a third of your salary but with a long payment history. 

A study by the Federal Reserve found that the correlation between income and credit scores is not as strong as many believe.

“Our analysis indicates only a moderate correlation between income and credit scores,” the study found.

Yet, with that said, income still often indirectly affects your credit score. This is largely because people with higher incomes are typically better suited to have lower utilizations, since they can access higher credit limits or more rapidly pay off debt.

People with higher incomes may be less likely to miss a payment because they can’t afford to make the payment.

However, those with higher incomes might be more likely to forget to make a payment, as WalletHub found, “People with high income are almost twice as likely to miss a payment due to forgetfulness as people with low income.”

This could be true because high income individuals may not feel the financial pressure that low income individuals feel.

Since utilization is 30% of your FICO credit score and payment history is 35%, it’s sometimes the case that people with higher incomes have better credit scores.

Although income does not directly affect your credit score, it is still a very important factor when a lender is making the decision to extend credit to you, especially when it comes to installment loans. 

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Specific credit scoring models

Many banks and lenders have their own type of scoring model which they use to determine your credit worthiness.

These typically utilize your credit score along with other factors, such as your income, housing status, etc.

So for example, a bank issuing a credit card will consider your FICO credit score but will also incorporate your stated income into its algorithms to determine if they can offer you credit and if so, how much credit you can be offered.

Some premium credit cards may have income cut-offs where below that your odds of being approved for that credit card are close to zero, but often a lower income just means a lower credit limit issued by that bank.

So income is often a secondary consideration for many credit card issuers and your credit score is what is much more important. 

However, for many models used to determine eligibility for installment loans, income plays a much more significant role, and one way it does that is by measuring your debt-to-income ratio.

Related: Can You Get a Credit Card with No Job?

Debt-to-income ratio

Your debt-to-income ratio looks at how much income you have coming in each month versus how much debt you’re required to pay off each month.

To find it, you divide your monthly income by your total amount of monthly debt payments (car note, student loans, minimum credit card payments, etc.).

 This should be distinguished from your credit card utilization (credit-to-debt ratio), as they are two completely different concepts.

Although it has nothing to do with your credit utilization, there’s a similarity between the two in that they both should be kept in check in order to maximize your chances of being approved for better credit lines and/or loans.

I recommend to keep your debt-to-income ratio between 15% and 36%. The lower the better, although it’s beneficial to have some level of installment debt so that prospective lenders can see that you can handle making payments and it also helps bump up your credit score. 

Keep in mind that, subject to certain exceptions, 43% is the maximum debt-to-income ratio you can have while still meeting the requirements for a “qualified mortgage.”

You can still have success with lenders even with an income-to-debt ratio over 50% but things get much tougher for you in that scenario, so try to remain much lower than that. 

What specific level of income-to-debt ratio is right for you depends on what type of credit you plan on pursuing and your own comfort level with making payments for your debt.

Some prefer to keep it closer to 15% to maximize savings while others may prefer levels closer to 30% so they can enjoy certain comforts, like living in a nicer loft, area, etc.

You should also make sure to factor in unexpected changes to your income that could occur in the future, since that could affect your ratio significantly. (I’ll write more on this topic later since there’s plenty to cover about it.)

Tip: Check out the free app WalletFlo so that you can optimize your credit card spend by seeing the best card to use! You can also track credits, annual fees, and get notifications when you’re eligible for the best cards!

Verifying income

So when your income does matter in certain scenarios, how do banks verify your income?

The answer differs. Believe it or not, for credit card applications, it’s often the case that a bank never requires you to verify your income. (If you have a very high stated income of a few hundred thousand dollars, that might be a different story.)

Every now and again, a bank may require you to submit pay stubs or bank statements for a financial review or for a credit card application, but these instances are very rare and are definitely the exception.

Related: What Does “Accessible Income” Mean on a Credit Card Application?

However, for installment loans, such as mortgages, you can guarantee that you’ll have to prove your income by submitting pay stubs or tax forms.

And that makes more sense.

For one, installment loans typically involve much higher sums of money so the stakes are higher.

But practically speaking, an installment loan issues you a monthly bill every month that does not depend on the previous month’s spending like a credit card.

Thus, it’s even more important for a lender to see that you’ll have a steady flow of funds coming in each month since you’re also guaranteed to see a steady flow of those bills coming in.

FAQs

Does income show up on your credit report?

No, your income does not show up on your credit report.

What is a good debt-to-income ratio?

I recommend to keep your debt-to-income ratio between 15% and 36%. 

Can you have a good credit score with a low income?

Yes, it is possible to have a very good credit score while having a low income as long as you don’t miss payments and keep your utilization low.

Is there a correlation between income and credit scores?

A study by the Federal Reserve found only a moderate correlation between income and credit scores.

Final word 

Your income does not affect your credit score, at least not directly. Having a higher income often allows you to decrease your credit utilization and that can indirectly benefit your score but there’s no category for income when determining your FICO score.

On the other hand, your income often comes into play when lenders make their decision to extend your credit and for installment loans, such as mortgages, you should always expect your income to be relevant since your debt-to-income ratio is such a significant factor.

How Credit Mix Affects Your Credit Score [2021]

Credit mix is a category that accounts for 10% of your total FICO score. It’s an often overlooked category and probably the least discussed category of your score.

While it’s likely the least important factor in determining your score, it’s still beneficial to understand how this category is determined so that you can eventually reap the benefits of having a good credit mix on your credit report. 

What is credit mix?

Credit mix looks at how diverse your different credit lines are. There are two major types of credit lines: installment and revolving credit lines. (Also discussed are open lines of credit.)

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Installment credit lines

For installment credit lines you usually pay a fixed amount each month until you pay down an entire balance due. These loans are typically financed for years (and sometimes decades) at a time.

You can often pay these off in advance or expedite the pay-off process by making things like double payments.

Common examples of installment loans are:

  • Home loans
  • Auto loans
  • Student loans
  • Personal loans (can often be revolving)

Because the payments for these loans remain the same each month, your income and income-to-debt ratio can play a large role in obtaining these.

Revolving credit lines

Revolving credit lines offer you a credit limit that you can utilize at whatever pace you want to. So, for example, you might have access to a $10,000 credit line but you can choose to only use $500 of that if you’d like.

Because of that, your monthly payments can vary which is a key distinction between revolving credit lines and installment lines.

Your income is not quite as important in determining your approvals for revolving lines (it’s more about your credit score).

Common examples include:  

  • Credit cards
  • Store credit cards (Macys’ card, GAP card, etc.)
  • Trade lines (credit line at a jewelry store)
  • Personal loans

Open lines of credit

Open lines of credit are credit lines where you’re given an unspecified amount of credit usually on a monthly basis and expected to pay that balance in full each month.

Many open lines of credit will not reflect on your personal credit report (unless you miss a payment). Other open lines like charge cards do report on your credit report but don’t affect your credit card utilization.

Examples of these include:

  • Utilities
  • Charge cards

How much does credit mix affect your credit score?

Your credit score is determined by the following categories:

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

It would appear that mixed credit carries the same weight as new credit but according to Creditcards.com, Barry Paperno, a consumer operations manager at myFICO.com stated that, “[f]or the most part, it can be considered the least important of the five main components.”

That seems a bit contradictory since new credit is allocated the same 10% as mixed credit but that information is coming straight from an operations manager at myFICO, so it’s safe to say it’s probably accurate. 

Why is mixed credit important?

Creditors want to see that you can successfully manage different types of credit. 

Barry Paperno also stated that “FICO’s research has found that, all things being equal, consumers with a ‘mix’ of credit types on their credit reports tend to be less risky than those who have experience with only one type of credit.”

Presumably, the better you are at managing an array of different credit lines, the more responsible of a borrower you might be.

Statistically speaking, this probably is accurate as you can imagine that a typical profile of someone with a mortgage, car loan, student loan, and a couple of credit cards would on average be more stable than someone with only five department store credit cards.

Of course a lot of other correlative factors probably come into play here like income and education, but I don’t doubt what the statistics probably show about consumers with mixed credit profiles. 

Why is credit mix important to the consumer?

Practically speaking, mixed credit is important because FICO says having a variety of loans is necessary for earning a perfect credit score, according to creditcards.com.

Ethan Dornhelm, principal scientist at FICO reiterated that the change in credit score is around “10 to 20 points, not 100,” according to FoxBusiness.

So this category is probably more for the over-achievers seeking perfect or near perfect credit scores.

In other words, if you’re just starting to build up your credit or rebuilding your credit, I wouldn’t prioritize diversifying your credit mix.

Instead, focus on lowering your utilization and building up your payment history since those things make up 65% of your credit score. 

If the credit diversification happens on its own then great, but I wouldn’t go out of my way just to pull out different types of loans for a bump in my score.

It’s probably best for most people to just let it happen naturally. Plus, it’s possible that the effect from your credit mix is interrelated to a number of other factors on your credit report like your payment history, utilization, other accounts, etc., so it would likely be difficult to accurately predict what kind of boost you’d receive from taking out a given loan in any event.  

Tip: Check out the free app WalletFlo so that you can optimize your credit card spend by seeing the best card to use! You can also track credits, annual fees, and get notifications when you’re eligible for the best cards!

How to perfect your credit mix

One interesting quote about the effect of mixed credit comes from Paperno at FICO and states that, “The number of each type of account is not as important for a person’s score as simply having experience with both types of accounts, either currently or within the recent past.”

There are two take-a-ways from this quote for me.

First, it’s important to note that the number of different accounts doesn’t matter much. This makes a lot of sense since a lot of people probably don’t have more than one type of home loan, auto loan, etc.

Second, the quote stresses that what is most important is having experience with “both” types of accounts.

That’s important to me since it seems to imply that what’s most important is just having a mixture of both installment loans and revolving credit, since those are the two major different types of credit lines.

Open lines of credit may not matter as much.

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Different weight for different types of accounts?

There’s conflicting information on how much having different types of installment and revolving accounts affects your score.

Obviously, the quote from Paperno states that the number of each account type isn’t as important as having both types (installment and revolving accounts).

But the quote also doesn’t state that having a good mix of different types of installment and revolving credit lines is not important or not considered.

Since FICO doesn’t release exactly how they calculate their credit scores, it’s hard to know exactly how important it is to have a variety of each type of credit line. My guess would be that it’s not very important to your overall score.

That’s because the mixed credit category is the least important factor and what’s most important for this factor is merely having both types of credit: installment and revolving.

Thus, if you have a little bit of both revolving credit and installment credit, you probably are reaping the majority of whatever little benefit “mixed credit” is having on your overall score. 

Still, some have stated specific guidelines about maintaining a proper mixture of credit.

For example, Streetdirectory.com claims that “When it comes to maintaining a good mix of credit, most advisers recommend that you have one loan for every 3 to 5 credit cards.”

I don’t exactly know who these advisors are that recommend that but I do think it makes sense that the overall make-up of your mixture of credit is considered to an extent.

For example, I could see why a home loan would make you appear more responsible on paper than having an auto loan, since those who obtain home loans probably have a better track record on average than those with just auto loans.

And don’t forget, there’s many different models of your FICO score, some of which are specifically tailored to different industries.

It’s very possible that a FICO model designed for the auto industry would give more weight to credit mix that has a history of auto loans and the same with mortgages. Again, that’s speculation on my part but I think that it makes sense. 

Mixed credit FAQ

How much does mixed credit affect your credit score?

Mixed credit is 10% of your FICO score and experts state that it will typically only impact your credit score by a matter of around 10 to 20 points.

What is a good credit mix to have?

Some advisers claim that you should have one installment loan for every 3 to 5 credit cards. However, others believe that it is important just to have at least one type of installment and at least one type of revolving credit line.

Why is mixed credit important?

Research shows that consumers with a mix of credit types tend to be less risky than those who only have experience with one type of credit.

What are open lines of credit?

Open lines of credit are credit lines where you’re given an unspecified amount of credit usually on a monthly basis and expected to pay that balance in full each month.

What is a revolving line of credit?

Revolving credit lines offer you a credit limit that you can utilize whenever you want.

What is an installment credit line?

An installment credit line is a line of credit that you usually pay a fixed amount each month for until you pay off the entire balance over time.

How is your FICO score determined?

Your credit score is determined by the following categories:

Payment History (35%)
Utilization (30%)
Credit History (15%)
New Credit (10%)
Mixed Credit (10%)

Final word

Overall, establishing your credit mix should not be a major priority since it is the least important factor in your credit score and it’s easy enough to naturally diversify your credit with both installment and revolving credit lines. However, since it could end up bumping up your score 20 to 40 points, it’s worth it to keep an eye on it and monitor how your credit mix is developing as you continue to pursue different types of credit. 

Should You Pay off Your Credit Card Balance Each Month? [2021]

For a lot of beginners, there’s some confusion regarding whether or not you should pay off your credit card balance each month.

A lot of people actually think it harms your score to pay off your balance in full each month and others swear you should pay off your balance each month to avoid interest.

So which is it?

In a way, both sides are correct, it’s just that there needs to be some clarification about when you’re paying off your balance. I’ll explain why you should pay off your balance each month and how you can benefit your credit score in the process. 

Before I jump into whether or not you should pay your bill, it helps to understand how this question fits into the broader scheme of improving your credit score. So here’s a quick refresher. 

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

Your credit score 

When we’re talking about the pros and cons of paying off your credit card balance, we’re talking about the “utilization factor” of your credit score.

Your FICO credit score is determined in the following way: 

  • Payment History (35%)
  • Utilization (30%)
  • Credit History (15%)
  • New Credit (10%)
  • Mixed Credit (10%)

Your utilization is also called your “debt to credit ratio.”

So for example, if you have a $10,000 total credit line and you are using $3,000 of that credit line then you have a 30% utilization.

Utilization makes up 30% of your total credit score, making it the second most important factor for your FICO score. So it’s vital that you understand how paying off your bills will affect it. 

The ideal utilization 

Ideally, you want to keep your utilization under 30%, although I actually recommend striving for ~5%.

Generally, the lower your utilization the better, until you get to 0%. And this is where the confusion usually comes in. 

You want to keep your utilization somewhere above 0% to maximize the benefit to your credit score. Why does it hurt your score to keep it at 0%? After all, doesn’t that mean you’re taking care of all your debt as opposed to just some of it? 

The answer is that your credit score is meant to reflect how big or how little of a credit risk you are (i.e., how likely you are to pay back what you are borrowing). If your utilization is at 0% then from the perspective of a lender, you look like someone who does not use your credit. 

This means that you may not be experienced with borrowing and repaying credit and may only be experienced with not borrowing available credit. While the latter still makes you responsible, the former makes you appear even more responsible and experienced (and not to mention profitable). 

That’s why having more than 0% utilization but less than 10% (or 30%)  is ideal. It shows that you can borrow money and still keep yourself in check and pay it back (i.e., be responsible). 

Related: How to Improve Your Credit Score Fast

Tip: If you have maxed out credit cards, get added as an authorized user to someone that has a high credit limit and you can instantly improve your credit utilization.

How does it affect your credit score? 

In the end, only employees and officers privy to FICO’s algorithms know exactly how a 0% utilization affects your credit score.

According to MyFICO, Barry Paperno, consumer operations manager for FICO, stated that a tiny reported balance can trump a zero balance.

 “In short, the lower a consumer’s credit utilization, the better, but having a small balance is slightly better than having no balance at all.”

Thus, it’s clear that having a small balance will benefit your score but if I had to guess, it’s not by a whole lot. But if you are shooting for a perfect credit score, it could probably help you get there.

One thing to remember is that lenders often have their own systems that work in conjunction with FICO scores.

It’s very possible that their systems factor in credit card usage on others cards because that would indicate to them that you are a more profitable customer (remember, these banks make a lot of money on interchange fees).

When applying for a credit card, I’ve even had bank reps on the phone bring up the fact that I have a card that wasn’t getting put to use.

Thus, even if the benefit to your FICO score is minimal, I’d still try to show usage on my credit cards so that other lenders will view you more favorably.

So should I pay my credit card off each month? 

Now that you see why having a balance each month is beneficial, you may think you shouldn’t pay off your balance each month. But that’s not how it works. 

After your statement closes each month, your balance is then reported to the credit bureaus. Once it’s reported, that’s the figure that determines your utilization. 

Of course, after your statement closes and that balance is reported, you then receive your bill.

So you can pay off your bill 100% to avoid all interest payments and still have that utilization reported to the credit bureaus and benefit your score.

This is the ideal way it should work: make your charges, wait for your bill to come in, and then pay it all off. 

Related: How Does Payment History Affect Your Credit Score?

What if I pay off my balance after each charge?

Some people like to pay off their credit card balance after each charge or alternatively they might run up a a maximum balance and then pay off that balance multiple times a month (usually called “cycling” your credit card line).

Both of these are usually not beneficial, except under certain exceptions. 

For one, if you pay off your balance after each charge or before your statement closes then you will be given a 0% utilization when your statement closes.

Thus, you will not be maximizing your FICO score. Also, I believe some banks may even limit you on the amount of payments you can make each month. 

Second, some banks become weary of you cycling your credit limit. This is especially true if your stated income is not very high and you’re cycling a high credit line multiple times a month.

Perhaps you have an authorized user who is also racking up charges so your total amount of spend comes close (or may even exceed) your stated income.

In this scenario, this can raise red flags and your account can come under investigation and in some cases even be shut down. 

Tip: Use WalletFlo for all your credit card needs. It’s free and will help you optimize your rewards and savings!

When it makes sense pay off your balance before closing 

Those two instances aside, sometimes it would make sense to pay off your balance (or at least most of it) before the statement closes. 

This would be a situation where you have a low overall credit limit. Let’s say you are still in the process of building your credit and only have access to $1,500 worth of credit.

You may easily exceed that on spend each month such that if you didn’t pay down your credit card, your utilization would be reported to the credit bureaus as nearly maxed out, which is not good! 

In that case, I would recommend trying to pay down the balance once or twice a month but try to keep something on your balance when it’s time for your statement closes. Even keeping $150 would give you an ideal 10% utilization. 

In many instances, once banks see you doing this a few times they will often increase your credit limit for you (Chase is really good about this).

This is different from the other situations where you’re cycling a high credit limit because the banks can see that you’re operating with a low credit limit and know that you don’t really have much breathing room. 

Finally, if you’re operating with an extremely low line of credit, such as a $300 line of credit, I wouldn’t stress about trying to keep a small balance before the statement closes.

If it’s not an issue for you to keep around $30 on your balance each month before closing then sure, do that. But if that’s causing you stress, I would probably just pay the whole thing off before my statement closes, so that my utilization is 0%.

I’d do that for several months to build up my credit report and then once I was ready to apply for another card, then I would go out of my way to keep around 10% on the card with that month’s closing statement. 

FAQs

How much does utilization affect your credit score?

Utilization makes up 30% of your FICO credit score, making it the second most important factor. It can drastically impact your credit score if it is too high by bringing it down over 200 points.

What is credit card utilization?

Credit card utilization is what percentage of a given credit line you are using.

What percent of credit card utilization should I have?

According to Barry Paperno, consumer operations manager for FICO, you want your credit card utilization to be low but not zero for an optimal score. 5% utilization would be a good target to shoot for.

Should I pay my credit card off each month?

You should pay your credit card bill off in full in order to avoid any applicable interest. However, you want your balance statement to close with a small balance so that your utilization is not 0%.

Can I pay my credit card bill multiple times a month?

You can pay your credit card bill multiple times a month but some banks limit the number of payments you can process.

Final word

So in conclusion: 

  • You want to keep your utilization somewhere between 1% to 5% when your statement closes to maximize the benefit to your credit score.
  • By paying your balance in full after your statement closes you will avoid interest and allow the lender to report your utilization to the credit bureaus. 
  • Unless you have a low credit limit or some other circumstance, there’s no reason to pay off your bill before your credit card closes
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