It may or may not surprise anyone that I don’t have a perfect credit score. Unlike many of the other credit card writers (bloggers) out there, I don’t claim to have perfect credit either. In fact, I’m not sure how anyone could maintain a “perfect” credit score when they are opening/closing several cards a year. I’m guessing anyone in that position is either older than I am or has been doing this longer. That’s because credit scores are determined by a variety of factors, but the two factors that really hold my score down are duration of credit and variety of credit.
At the moment I don’t have a mortgage, auto loan, or any term debt at all. The only debt I maintain is revolving debt or credit card debt. This isn’t a huge issue, but it’s something that comes up as a reason why I don’t have “excellent” credit. Luckily, I’ve been able to maintain a “very good” credit score for years thanks to timely payments and low overall credit utilization. Then, just a few weeks ago that all changed when I my credit score nearly dropped into the “good” range of 740 and below. I wasn’t happy about this drop at all and I needed to know how to fix it. So, I logged into my Quizzle account and pulled my annual credit report. What I found was interesting to me and I figured I’d share it with you.
Unused Credit Cards
It all started back in 2010 when I opened my first credit card. At the time I had absolutely no credit history and I was denied credit from nearly every card issuer. After a few months of trying to obtain a credit card, I finally opened a student credit card from Bank of America. I’ve had that card for years and the card has since been converted to the BankAmericard Cash Rewards card. I keep this account open because it’s my oldest account and the card doesn’t have an annual fee. In all honesty, I’ll probably keep this account open forever. Although I’ve had the account open for years I never actually use the card. For years I’ve stored the card in a safe location and forgotten about it. This was the fist thing I’ve been doing wrong which caused my score to drop.
Interestingly enough, the credit agencies view unused revolving credit as a negative credit event. To the rating agencies, an unused revolving line of credit somehow signifies that you can’t handle credit. I don’t get why they view an unused revolving line of credit this way, but they do. So, when I checked my Quizzle Timeline I noticed a big negative sign on my timeline for not using this account. In fact, the last time I charged anything to this card was back in July 2012! Sadly, this was only the beginning of the story.
More Unused Credit Cards
In fact, my Quizzle Timeline didn’t just show a single unused account, it showed three. The report is accurate, but before I checked I didn’t understand how much of a negative impact this lack of activity had on my credit score. On my report the three accounts I hadn’t used were my original BankAmericard, my Chase Marriott Rewards Permier card, and my Chase Sapphire card. I hadn’t used the cards since July 2012, September 2016, and Feburary 2017 respectively. All three of those unused lines of credit negatively impacted my credit score and helped contribute to the recent drop of my credit score.
Paying Off Credit Cards Before The Statement Closed
My credit score also took a dip because I decided to pay off all of my cards in early June much before my statements closed. I’ve been trying to better manage my cash flow and I decided to zero out all of my credit cards and only use one card for the remainder of June. This way I could get a better handle on my cash flow and see any cards with recurring automatic charges. Although this sounds like a great idea, it wasn’t in eyes of the credit rating agencies.
At month-end when my credit card statements closed, I only had a small outstanding balance on a single card. Apparently this again makes it look like I can’t manage credit to the rating agencies. Also, since my statement balance is zero, there is no positive activity for each, perfect, on-time payment. All in all, my pre-payments and unused revolving lines of credit all worked against me to drop my credit score by nearly 40 points in a single month!
My Strategy To Improve My Credit
The day I learned about this I immediately took action. I don’t really need “excellent” credit right now because I’m not looking to buy a house or finance any other major purchases, but I definitely didn’t want my score to drop any farther. That evening I went into my credit card safe (a mug) and pulled out all of my cards. I then walked from convenience store to convenience store buying various items of $10 or less. I waited for all the charges to post and again waited for all of my credit card statements to close. At this point I had outstanding balances on all of my cards which I kept open until each card’s statement closed. At month end I paid off each balance in full and waited.
I’m happy to say this strategy worked. The next month my credit score jumped back to 780 and my “very good” credit score remains intact today.
Final Thoughts
The world of credit cards is extremely rewarding, but also incredibly complicated. Nearly everything credit card churners do negatively impacts credit scores. That’s why it’s so important to actively manage credit cards if you plan on getting into the hobby. It’s important to know exactly what you’re doing and what you need to be doing to maintain a very good or above credit score. If you fail to maintain a great score you could end up paying much more for your first mortgage or your next car loan. Either way, if you misuse or abuse credit today it could come back to hurt you later.
Keep in mind the biggest impacts to your credit score are timely payments and credit utilization. Never, under any circumstances miss a payment! Also, remember to keep your credit utilization under 30%, but really the lower the number the better. In turn, over time, call your existing card issuers and ask for a line increase over time. The higher your aggregate credit limit mixed with low usage will only improve your score over time. Also, increasing and properly using a line of credit shows the rating agencies that you know how to handle credit and are extremely creditworthy. All in all, I hope this serves as a gentle reminder to everyone to use old credit cards somewhat regularly to avoid negative impacts to your overall credit score.
