Pay off accounts in full each month to increase your scores.
When you only spend what you can afford, then your credit usage is low, you can make on time payments, and you increase your credit scores. Financial health and great credit work on the ability to actually afford things. People who have plenty of savings can still have poor scores because they have a high usage ratio.
People with plenty of money and the ability to pay off their debts in full, who pay off credit cards each month, will have better scores. If you want to be this latter type of person, then you need to live within your means and pay your debts as you go.
It is not a new strategy at all. People used to pay off their debts each month, avoid most credit cards, and live within their means. In the 80’s and 90’s credit card usage started to increase, where it became acceptable to have credit card debt. There was still the general thought that the debt would not max out the cards and it would be paid off slowly or in a large chunk at the end of the year.
Somehow between the old and new millennium, credit card debt became the norm, where you didn’t have to pay it off right away. But, this belief did not help your credit. Great credit comes from a low debt ratio, where you make on time monthly payments, have old accounts, a few new accounts, and various types of credit. If you can establish a good looking credit report, then your scores will naturally be in the higher ranges.
How it Works
- Pay off your credit card balance each month.
- Pay your utilities and other open accounts in full each month.
- Make more than the monthly payment for installment agreements.
You don’t have to pay off installment agreements as quickly as revolving credit. The fact is they are often too large to do so, but you can make more of a monthly payment as a way to be consistent, reliable, and lower the debt owed for a more favorable outlook.
- Paying off the debt as you go lowers your debt ratio compared to your income.
- You want a favorable debt to income ratio to gain new lines of credit.
- You have more financial stability because you are only spending what you can afford
- Paying more to your installment agreements also means less interest paid out.
- Your scores go up with “paid in full” accounts versus high debt, open accounts.
Utilizing the system by paying as you go and affording the debts you have, ensures you can get better loans, credit cards, and interest rates. These better products ensure great credit, with high credit scores.