Are Your Revolving Accounts Lowering Your Credit Scores?
One of the most important ways to achieve and maintain excellent FICO credit scores is to carefully manage your revolving credit.
When I say, “revolving credit,” I’m referring to any credit account you have where the monthly payment can vary. Credit cards are the most common form of revolving credit.
Of course, “revolving credit” refers to almost everything in your wallet or purse that’s plastic that you can use to buy something. This includes American Express, Discover, MasterCard, or Visa credit cards. This also includes retail store cards such as Macy’s or Target, and gasoline cards.
The exceptions are check cards and debit cards. These little dudes may be plastic and have a MasterCard or Visa logo, but they aren’t really credit cards. They’re more like plastic checks than anything else. Debit cards have nothing to do with your credit scores.
Why your credit reports can show that your credit cards are maxed out when they’re not
In my case, my credit scores were lower than they should have been because I was using my personal credit cards for my business. An easy fix…I just applied for a corporate card and began using only that card for anything business related. (You should do the same if you have a small business.)
A few small business leases were also reporting as revolving accounts on my personal credit reports. Those were simple to resolve by just paying the small amounts off.
Then, I did a quick analysis of my credit reports.
The only way to really discover if revolving credit is lowering your scores is to do a quick analysis of your revolving credit accounts. (I’ll show you how at the end of this newsletter.) That’s how I found the big culprit that was destroying my credit scores…
Beware of home equity lines of credit
When I analyzed my credit reports I got a big surprise…I discovered several of my home equity lines of credit (HELOCs) were being misinterpreted as credit card accounts.
This was fooling the FICO scoring model into thinking that I had an enormous amount of credit card debt. But of course, I didn’t.
What I learned was that HELOC accounts can look exactly like a credit card account on your credit reports.
When I was trained by Fair Isaac Corporation, I got a different story. I was told there are two situations when a HELOC won’t be mistaken as a revolving credit card: Read more of this >>
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