BJC’S SCHOOL OF CREDIT IMPROVEMENT
I would hope most of you know your credit score. It’s probably one of the most important numbers in your adulthood. The Credit Score is that magical number that dictates if you can buy a car or a house and at what rate the creditors will suck you dry of your hard earned money.
Over the past 6 months, I’ve learned a very important lesson about my credit score. Don’t get me wrong, good ol’ BJC is doing just fine with credit, but I always feel like it can be better. It turns out it can, and I’ll tell you how.
I opened an American Express account 6 years ago. They’re a great company, provide you with stellar service, and if you ever have to dispute a charge, they will fight tooth and nail for you. What American Express doesn’t tell you is that they are not really considered a credit card. Yeah, the American Express “credit card” is a figment of your igment. American Express is actually considered a revolving account because you pay it off every month. There is no carry over on your debt, so Experian, Equifax and Transunion do not consider it an actual credit card.
In addition, the American Express Gold Card (yes, I’m that important) doesn’t have a limit. Jackpot! No, not really. Actually, it hurts you. If you don’t have a limit, the credit bureaus consider your highest reported balance to be your limit. So say you rang up $5,000 in charges on some new toys (your highest spending month ever.) Experian, Equifax and Transunion now consider you to have a $5,000 credit limit from American Express. The rule of thumb: you want to keep your credit balance under or equal to about 33% of your total limit ($1,667 in this case.) That rule of thumb applies to every credit card, American Express, Visa, MasterCard, Diner’s Club…
Say the next month you cut down your spending, but you’re looking at a $2,500 balance. Well my fellow mathematicians $2,500>$1,667, so to the bureaus you look like you’re carrying too much debt, and as a result, your score goes down because you’re a credit risk. Have no fear, for BJC found a trick through tireless research and testing: pay off a portion of your credit card before it becomes due. If you’ve accumulated $2,500 in debt, then pay off about $900 the week before your payment is due. When your balance is reported to the credit bureaus, it will show as $1,600 instead of $2,500, and you look like a credit stud!
Now you’d think having credit cards is harmful: you spend money you don’t actually see and end up with a giant bill at the end of the month (not to mention mounting debt that accrues interest month over month.) Yikes! In actuality, having several credit cards is a positive. It conveys to creditors that you have available credit but aren’t using it, and it helps to build your credit history.
With that being said, I have sat on this American Express credit card for years, thinking it was helping my credit. Alas, this putz realizes that it hasn’t hurt, but it hasn’t helped either. I guess I’ll need to explore new credit options to get my score to where it belongs. Definitely open to ideas, so tell me what you think on Facebook – – – or tweet at me: @CaptainCaplan.