How many of you have been taught the best way to protect your credit is to always pay your bills on time?
We all have. It’s common sense.
I still remember the little chat my Dad had with me about credit when I was about 18 and got my first Montgomery Wards card. He said,
“Tom, credit can be a great thing; but make sure you always pay your bills on time or you're going to regret it."
What if I told you just “paying your bills on-time” was hurting your credit score? It’s true. Let me explain.
Credit card companies want you to have bad credit. If you have bad credit, they have control. If you have bad credit, they now have the justification (at least in their minds) to give you the worst possible interest rates; and interest is where they make their money.
That being said, they employ all kinds of scumbag tricks to help you - give them the excuse they need to jack your rates up.
Just paying your bills on time is one of them. Here’s how it works.
Most credit card companies report to the credit bureaus about the same day they mail you your bill. You’re were dead before you even got the bill. Still don’t get it? Keep reading.
Your credit score is based on several factors. The second highest factor (30 percent) is your credit card balances. And that my friends, is one of the ways they get you.
Let me give you an example…
Let’s say it’s the 1st. of the month and you use $4,000.00 of an $8,000.00 credit limit. You’re not worried; you know your bill will arrive on the 15th. at which time you’ll have the money to pay-it-off in full.
Well, it’s already reported to the bureaus; $4000.00 and all. That’s because they reported it right before they even mailed you the bill. You never had a chance.
That’s 50 percent utilization, which we all know is bad. You should keep your balances below 10 percent. I guarantee you, 50 percent is dragging your score down.
Here’s where it gets worse. We’ve monitored thousands and thousands of credit reports; as well as the spending habits of our clients. 9 out of 10 people will go use their cards again right after paying them off.
If you’re thinking to yourself “then my balances will always look maxed”, you’d be right. Use that card right after paying your bill “on time”, guess what happens the next statement date?
It’s a vicious cycle that is sent into motion on purpose by credit card companies.
Here’s the good news. The solution is simple.
Call your credit card companies and find out their reporting date. Don’t wait for your bills to arrive, make sure that check is in their greedy little hands BEFORE they report.
Now, you’ve turned that that ugly little cycle into a positive. They will be reporting paid off cards every month.