Dear Liz: Over the last couple of years I have managed to pay off my credit cards. I know that closing those accounts will hurt my credit so I kept them open. When I checked my credit report, I found that my rating had gone down and was told that I had to actually use the credit cards and pay them off to keep my score up. I’ve been doing that over the last year or so and my credit score responded well. This past month my credit score went down again by a few points and I learned that it was because the credit card companies had rewarded my diligence by raising my credit limit. This apparently hurt my score. What’s up with this? Is there any way not to get dinged by the reporting agencies?
Answer: Higher credit limits would reduce the percentage of available credit you are using, and that should help your credit scores, rather than hurt them. So the score you’re seeing either isn’t a FICO score, which is the score used by most lenders, or you are being given questionable information about what affects your scores. Many score monitoring systems are set up to give you explanations for any change in your numbers, but those explanations might be vague or might not accurately depict what’s truly influencing your scores.
Your FICO credit scores change all the time, based on the ever-changing information in your credit reports. Variations of a few points shouldn’t be a cause of concern. Continue to use your cards lightly but regularly, paying the balances off in full each month. Over time, the variations will smooth out into higher scores.
I’m currently short on points to qualify for a VA loan; a 620 is needed. Should I pay a credit repair company or get a credit card (Lowe’s, credit union, etc.) to build up scores? I currently do not have any credit cards and I’m aware that this will be a long process.
Don’t pay a credit repair company. It won’t be able to do anything you can’t do yourself, and it may be a scam. A credit card that reports to all three credit bureaus can help you build your scores. Check with your credit union first, then consider getting a secured card (NerdWallet has recommendations). Once you get a card, use it lightly (30% of credit limit or less) and pay it off in full every month (no need to carry a balance). Get your credit reports at http://www.annualcreditreport.com and dispute any serious errors as well. You can learn more in my book “Your Credit Score,” available in bookstores and at your local library.