Why Paying On Time Can Still Ruin Your Credit Score

If you have been diligent in paying your credit card debt, naturally you’d feel somewhat confident. Confident that your credit score is intact and you have no threats from debt. However, don’t be too sure about this yet. Just because you always pay on time and in full does not mean that credit bureaus see the same.

Paying on time indeed creates a good reputation for you. Credit bureaus give a significant weight to timeliness. So just keep this up. Paying in full on the other hand is not as important for credit bureaus. In fact, they prefer when people pay the minimum or complete the payment in a longer period of time. By this it means that the bureaus like you to pay off in six months rather than in two months. This is because the longer you fulfill your payment, the greater income creditors get out of you.

However, this does not really matter when you are in fact keeping your wallet full. When you pay your debt in full, you are saving yourself from debt. There is nothing more peaceful than knowing you don’t have to worry about due dates. So how could your credit rating still suffer despite of your diligence? Your credit limit; this is what you fail to recognise often.

Credit bureaus give great importance to your available credit. It does not matter if you pay diligently. If you use up your credit limit regularly then all of your hard work goes out of the window. Additionally, your score is calculated based on your most recent credit statement. Thus it does not matter if in the past months you never used up your credit limit. What will be inspected is your recent, possibly last month’s, credit statement.

There are three ways to prevent this from happening. First, use different cards every time you purchase. This will spread out your debt among your credit cards. Second, raise your credit limit by asking from your bank or card provider. This is necessary when you are always purchasing big ticket items. Lastly, pay your credit card debt twice monthly. Make sure that either payment is given on time so as to avoid a late payment record. Paying several times a month will also quickly decrease your outstanding balance. Thus there will be more room for available credit next month.