In a word: NO!
So many people I first speak to and explain to them the importance of their “Debt to Credit Ratio” (balances divided by the limits on your credit cards) tell me—“Oh, I just paid them off!” They naturally believe this is a positive for their credit scores and they will immediately increase.
Common sense dictates that this is a good thing and of course if they had high balances then in the Big Picture of credit scoring it actually is.
Unfortunately it isn’t! Why. Because when you pay your credit cards or revolving credit down to a zero balance you have, no “activity” on those accounts which actually hurts your credit score! Remember, the Algorithm or Credit Scoring Model that calculates your score likes to see what we call “active accounts in good standing”!
Now keep in mind there are major factors in credit scoring and minor factors. This would fall under the latter category.
So let’ say you have a $2,000 credit card. If possible keep about $100 to $300 balance on it. Then set up an automatic minimum payment that is taken out of your checking account each month. It will only be about $10-20 and the interest you pay will be very low.
Now You are using the credit card companies as opposed to them using you!
It can be a 20-30 point increase in your score! And when it comes to credit scoring, sometimes every point counts!
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I love to work with my Bay Area readers that find my information on the Mortgage and Housing Market helpful in your decision making process. As a Mortgage Planner at Vintage Mortgage Group in Pleasanton, I am in a unique position to help you capitalize on historically low interest rates in 2012. Contact me below today to help you with your purchase or refinance.