When Paying Off a Credit Card DOESN'T Help Your Credit Score

Real Estate Agent with BERKSHIRE HATHAWAY Georgia Properties 157561


worried about money and credit

As most homebuyers know, your FICO score (the credit score created by Fair Isaac Corporation) rules your world!


 did you know that the big three credit services base a large part of your credit scores on the “balance due” to “card limit” ratio??


Your FICO credit score will not just determine if  you can get a mortgage, but what interest rate you will pay for it.  And, did you know that that little three digit score can also affect the price of your home and auto insurance?  It can even keep you from getting the job you want!

Your FICO Score is calculated by a mathematical algorithm that evaluates many types of information from your credit report.

We all know that a history of paying bills late can be very detrimental to your score (generally accounts for approximately 35% of your score).  But, did you know that the big three credit services (Equifax, TransUnion and Experian)base a large part of your credit scores on the “balance due” to “card limit” ratio?? This ratio can accounts for approximately 30% of your score!

My husband and I try very hard to live a “debt free” lifestyle.  As part of that plan, we usually charge everything to a credit card and then pay it off at the end of the month which makes it very easy for us track spending and keep our budget under control.  You would think that would mean that we are using zero (or a very small percentage) of our available credit, but that it not how it works!

Here is an example of how the credit services look at this scenario:  If we have a $10,000 limit on our Visa card and we spend $5,100 per month (easy to do when you have monthly business expenses in additional to personal spending) the credit companies consider it to be as if we are using 51% of your available credit… even if you pay it off at the end of the month!  What????   This plan can actually lower our credit score.

Here’s the REASON - the credit services only receive information from your credit card companies once a month, so they never see the paid off balance only the outstanding balance due!

To keep our score from being affected, we have chosen to split our purchases over 2 cards (1 for business and 1 for personal) to guarantee that we never use over 30% of the available credit on any card. 

I recommend that you look through the credit cards in your wallet… including all the ones that give you coupons or discounts in a department or home improvement store…. these usually have very low credit limits and this rule applies to them too!

The best advice I can give someone preparing to buy a home in the near future is review your credit report NOW and pay down every credit card to reach a balance due of 50% or less (30% is preferable!).


And… speak to a lender to get pre-approved. 


If you are not currently working with a lender and need a referral to a local Forsyth/Fulton/Gwinnett County (or anywhere near metro-Atlanta) mortgage pro, give me a call and I’ll gladly provide you with a copy of my “preferred lender” list.


This entry hasn't been re-blogged:

Re-Blogged By Re-Blogged At
Lending / Financial
credit score
credit report
my credit
paying off bills

Post a Comment
Spam prevention
Spam prevention
Show All Comments
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Gayle - That is great advice.  Not too many people think about balance to credit limit when looking at credit score.

Jun 30, 2014 10:34 PM #1
Wallace S. Gibson, CPM
Gibson Management Group, Ltd. - Charlottesville, VA

2 years ago, my younger sister wanted to get back into owning her own home...she had paid the last one off and rented for 5 years...she had no debt and only a bank debit card...I advised her to get a gas credit card and to USE IT....she bought her new home with a great credit score because she showed she had good credit....income is one thing; however, showing that one can manage their credit is something else!

Jun 30, 2014 10:40 PM #2
Roya Hatcher
RMCN - Mc Kinney, TX

That is great advice that I also give to clients. If that doesn't quite get them into a home I have a program that WORKS. www.rmcn.com check us out!

Jul 02, 2014 02:47 AM #3
David Toaff
First Home Mortgage - Bethesda, MD

It's incredibly what a difference balance on cards can make.  I had a client's score go up 27 points over lower balances.  I  let people know of the basic credit do's and dont's ASAP

Jul 02, 2014 10:05 AM #4
Post a Comment
Spam prevention
Show All Comments

What's the reason you're reporting this blog entry?

Are you sure you want to report this blog entry as spam?


Gayle Barton, Forsyth County Real Estate

Cumming GA Homes For Sale (404) 710-0204
Have a question? JUST ASK ME...
Spam prevention

Additional Information