By Barry Paperno
Dear Speaking of Credit,
I have 10 credit cards, I use them all every month for a couple of dollars each, except the one that I have to maximize for the sign-up bonus. Every time I swipe any card, I pay in full the balance the same day and I try to get to the statement closing day with a $0 balance. Is that good or is it better to close the balance with few cents debt?
See here my FICOs please in order to let you advise me the best way to raise them up. I opened my first credit card in January 2014. I’m “new” to the Country 🙂 — Paolo
First, I have to tell you I’m absolutely amazed that you have been able to open ten cards in the past nine months with no prior credit history!
I’m glad that, along with your questions, you also sent me the links to your Barclaycard and Discover FICO score reports that not only show your scores, but the all-important score factors. Your scores are very good, considering your short credit history, however, as you know, they have a little further to go before you’re going to get the best rates on a mortgage or auto loan, or the the premium rewards cards.
If you’re not familiar with the score factors that accompany credit scores, these are the top reasons why your score is not higher, with the first factor listed having the most negative impact, the second factor having has the next most negative impact, and so on. Depending on the format in which you’re receiving your scores, and the score itself, there can be up to five score factors. Your score factors for both scores are:
- Length of time accounts have been established
- Too many inquiries in the last 12 months
Sometimes the score factors can be more meaningful than the score itself when you want to know how to improve your score, and your situation is a great example. For instance, if your factors had referred to late payments and high credit utilization (card balance/limit percentage), you would know that paying on time and reducing your balances will be the fastest way to a higher score.
The first factor you received points to your short credit history, which can be measured in various ways, but always using the open date for each account. One scoring calculation in this “length of credit history category” (15 percent of your score), is the “average age of accounts,” which simply takes the total months since the open date for all accounts on your credit report and divides by the number of accounts. From here on out, it will be to your advantage to avoid new accounts that will tend to suppress or lower your already low average age.
The second factor, part of the “new accounts” scoring category (10 percent of your score), is obviously the result of having obtained so many new accounts over the past year, as each new account opening can be expected to generate at least one inquiry at one of the credit bureaus. Fortunately, FICO scores only consider inquiries for 12 months, so they should not be impacting your scores for long – assuming, of course, they’re not replaced by new ones.
Relying on these factors to help answer your question of how to raise your scores, my recommendation is to avoid opening new cards for at least the next year. This will allow your length of credit history to increase, while letting those inquiries age past the 12 months they’re impacting your scores.
Regarding your question asking whether you should allow a zero or small balance to appear on your monthly statement, which is then typically reported to the credit bureaus, either way is good for your score – although by “small balance” I’m talking dollars, not cents. If you weren’t as conscientious about paying throughout the month as you seem to be, I might be inclined to simply suggest paying in full by the statement date, so that a $0 balance reports. But, in fact, by showing a very small balance amount – utilization percentage in the single digits – you are likely to gain a few more points than with $0. Just always make sure that any amount left reporting is paid by the due date to avoid finance charges.
Basically, the best thing you can do to raise your FICO scores over the next year is to do nothing – no new cards – other than paying as you have been, with small balances reporting each month.
Welcome to this country and the world of credit scoring. I’d say you’re definitely getting the hang of it!
Have a question, comment, topic idea, random thought? I’d love to hear from you!