How you can never be late on a payment, never go over your limit....and have your credit score drop!

How you can never be late on a payment, never go over your limit....and have your credit score drop!

Impossible you say?!?!?  This is what is happening every day in America!  For decades we have heard about how much debt the average consumer is in.  For years we have listened to financial gurus tell us to pay off our revolving debt....well....now you might just have to!

With the credit crunch going on in America today it is imperative for the consumer to realize what is happening to their credit scores that is absolutely out of their control.  Your credit scores are determined by mathematical algorithms developed by FICA.  Those algorithms take into account the ratio of credit used to credit limit (you need to stay less than 50% if at all possible). 

Here is the issue, credit card companies are raising interest rates and lowering credit limits!  No problem you say, you only use 50% of the credit limit anyway....well....if you have $5000 on a card with a $10,000 limit, than you are at 50%, not too bad.  But, if your credit card company lowers your limit to $6000 you are now at 83% and your credit score just dropped!  Now to get your credit score back you need to drop your balance to $3000.  The more cards you have the worst it can affect you!

I would highly recommend that anyone who is carrying a balance on their credit card start paying down the principal as soon as possible.  I would not do it to the detriment of cash on hand for emergencies but I would definitely start addressing the problem to protect your credit scores.

Damon