Editorial Policy

Charging up a little-used card can drive scores down

Erica Sandberg

July 12, 2016

Q Hi Erica,

Why did my credit scores go down? I have only one credit card, a Chase card that up until a few months ago I didn’t use much. I have very little debt, I pay on time, and I do all the things suggested to keep my credit score moving in the right direction. Then for reasons I don’t want to go into (but nothing bad, Erica), I did use the card a lot. Today I got an email from Chase saying that my credit scores are at risk because of my recent activity. What is the use of having a credit card if using it makes your scores go down? — TJ

A Dear TJ,

Not to worry — as long as you continue to use your account responsibly, your credit scores should be fine.

When you were charging the occasional purchase while also paying the balance in full, your credit utilization ratio (the difference between the sum you owe and the amount you can borrow) was low. Many credit experts suggest keeping this ratio well below 30 percent. Paying on time and credit utilization are important factors for credit scoring.

However, for whatever reason, you borrowed much more money with the credit card recently. This is your right as a credit card customer, but it does have an impact on your credit scores. Too much debt relative to a credit limit can indicate financial problems, which is why you probably received the alert from Chase.

To deal with this situation, pay off any balance as fast as possible. Develop a plan to pay off your debt that works for you. Review your budget and determine how much you can send Chase on a monthly basis. Stop using the card while you’re in repayment mode. With each payment, your credit utilization ratio will fall, and your credit scores should steadily climb.

Another option is to ask your credit issuer for a higher credit limit, as that also will decrease your credit utilization ratio.

But let’s go back to your question about the purpose of a credit card. As you’ve experienced, the ideal way to use it is to make purchases that you can pay for in approximately 30 days. Not only will your credit rating benefit, but no fees will be applied.

There are times, though, when you may want to spread the price of an expensive item out for a few months. That’s fine, too! If you delete the balance quickly, the extra cost won’t be too steep. When you use your card, you also may also get perks, such as a warranty extension or purchase protection if an item is damaged or isn’t shipped as scheduled.

I think it’s great that your credit card issuer sends alerts to let you know how your use of the card could affect your credit score. It’s nice to know you have the opportunity to adjust your behavior, so you can keep your credit scores high.

And when your credit scores take a little dip — and they often will — don’t panic. Credit scores fluctuate constantly. It seems obvious that you know how to use a credit card effectively, so keep doing what you’ve been doing: Use your card, and pay the entire amount due. If every so often you choose to finance something, make sure it’s just for a short period of time. A wise rule of thumb is to pay off any credit card debt within six months.

Got a question for Erica? Send her an email.

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