A Personal Look at Credit
A Personal Look at Credit
My fraternity brother Brad seemed cursed when it came to the game of golf. We all gave him pointers at one time or another, but no matter how hard Brad tried, the golf ball just seemed to come off his club willy-nilly. None of us could figure out what he was doing wrong, so it just became a standing joke and Brad was good-natured about it.
When we graduated, Brad and I ended up working for companies in the same part of town, and decided to split the cost of an apartment. After about six months, I noticed a lot of credit card and loan offers coming to our apartment in Brad's name. The fact that he got so many and I so few seemed to indicate that his credit score was higher, and yet we had about the same amount of debt.
I had spent the first several years of having a credit card by paying it off every month. For a while before I got my job, I'd charged a lot on the card and built my debt to a point that I couldn't pay off each month. Still, I only kept one card at a time. Whenever a 0% interest offer would come to me, once a year or so, I would take them up on it, canceling my older card and transferring all the balances to the new zero-interest card.
Brad, on the other hand, had three cards. He kept about an equal amount of debt on each one and had always carried a balance. It seemed when it came to credit, I was just like Brad on the golf course. No matter what I did, my score wasn't going in the direction I'd intended.
It was by chance one night that Brad and I met Roger, a credit repair specialist at a local debt service company. He was also an avid golfer, and that's how we got started talking. It didn't take me long to start asking him a few questions about my credit.
Once Roger heard about my credit card routine, he just chuckled and began to explain how the habits I'd thought were beneficial were actually holding me back.
"The credit reporting agencies like to see a long payment history on the same card," he began, "so every time you close an older account and switch to a new card, you're starting over on your payment history. And you mentioned Brad has his debt spread out on three different cards, and that he carries a lower balance on each one?" I nodded.
"Well," Roger explained, "the credit bureau's score is partially based on the percentage of your credit limit that you're using. It sounds as though your one card has a balance over 80% of your limit, whereas Brad's three cards are probably only at 25-30% of each of their limits. Plus if you've missed a few payments, it could take you a little while to build your number back up, since payment history is a big component of the score as well."
I was beginning to understand, but I had to ask Roger, "How come I didn't build up a lot of credit in the beginning when I was paying the card off each month?"
"That's another common misconception," Roger said. "The credit bureaus like to see that you can handle carrying a balance. You'll usually get a higher score if you routinely carry a low balance month to month, as opposed to always paying your card off completely."
I had learned a lot in just a few minutes. Over the next few months, I took Roger's advice. I signed up for another card and transferred half my balance to it. I tried to pay down, but not pay off the cards month to month. I also held onto my two cards and threw away the 0% interest offers that came my way.
Brad and I kept in touch with Roger. We even met him on the golf course, and it turned out he had a few tips for Brad that helped to straighten out his swing.
After following Roger's advice for about a year, I decided to take advantage of my free annual credit report check-up at annualcreditreport.com and was pleased to see that my score was much higher. I still hoped to raise it, but this was a good start.
Brad and I caught up with all the guys from the fraternity a few weeks ago and they were all amazed at how much better Brad's golf swing had become. We told them about Roger and how he'd given Brad a few pointers. The guys were amazed, and while I didn't go into the story, I was silently thanking Roger for his advice to me as well. He may not have turned Brad into a professional golfer, and I was still determined to raise my credit score higher, but thanks to him, neither of us was shooting in the dark.