AN EPIPHANY! Maximizing Credit Scores

Throughout the industry there are two thoughts about the payment of credit cards balances.  Being that we are Pro-Credit and Anti-Debt we don’t want our clients paying unnecessary interest monies to the financial industry.  Some, including myself, feel that it’s best to pay them off every month.  This has worked for my clients very well.  Others, feel it is necessary to carry a small balance month to month; I get this from the financial institutions that benefit from the interest earned on those small balances.

This content on the topic relates to those struggling to raise their credit scores as quickly as possible, because they are seeking to make a major purchase, and want to get the best possible rate on a loan.  If there is no specific goal in mind simply make your payment before the due date.

I have had one client go from Chapter 7 Bankruptcy to a 685 FICO Score in 18-months using this payment strategy, and two other credit building strategies I teach.  A secured credit card, and a short-term loan against savings paid off early kick off this effort.  Use of the credit card becomes critical in this strategy.  If the balance is more than 30% of the credit line being reported to the credit bureaus the day after the Statement Closing Date, you’re going to hurt your credit score.  Paying off the balance in advance of the statement closing date means you never have a balance, but payments are recorded.

THE EPIPHANY:  I determined a method of payment that may give the consumer an even bigger bang for their buck.  This would be a combination of the two strategies.

To maximize credit score improvement I believe paying the account twice a month might prove to be advantageous. It goes something like this…. Before the statement ending date pay the account down to 25% of the credit line, this would be $125 on a $500 credit line, then make the second payment to bring the account to $0 before the payment due date, thereby eliminating any interest paid to the institution. The balance is logged, and so would both payments in the next cycle. If you are planning to apply for a mortgage the first payment should bring the balance to 10% or $50 in this example. This would minimize the minimum payment due that would affect your debt to income calculation.