When I interview potential clients, I usually notice something on their credit report that will lower their FICO score more than a negative item will… do you know what it is?

We would think that a positive trade line (a current, paid-as-agreed account) such as a credit card or revolving line of credit are what is needed to establish good credit.

And usually that is true, unless the balance owed is close to or about the same as the credit line’s limit.  In other words, let’s say you have a credit card with a $5,000.00 limit.  If you have used up all the available credit, real close to the entire five thousand dollar, then you are carrying a “high balance”.

This potentially will cause more damage to your credit score than a negative item might, depending on the negative item.  While it may not be as bad as a charge off or a judgment, it will absolutely lower your score and cause you to have to pay higher than usual interest rates.

Your tip this month is to pay those accounts down!  Keep your credit card balances down to no more than 20% of the limit.  So, using our $5,000.00 credit card limit example, you will want to start paying it down to about $1,000 or less and then have a long history of timely payments on that account.

If you accomplish this with all your trade lines, lenders will offer you optimum interest rates when you buy something on credit and you will enjoy an improved FICO score too!

Next month our Tip of the Month will discuss how many trade lines you should have and why.  Don’t miss it!