Every credit report/score is unique, and criteria for approval can differ as well. Creditor guidelines may vary per bank, per product and per applicant. A banks decision could use one, some, or all of the following:
- Utilization (how much used)
- Length of accounts
- Income (may include pay-stubs and tax statements)
A less considered piece of information on your credit report is your ‘backbone.’ Meaning being able to prove you can pay your debt. This is similar to staying current (which is obviously important), but paying the account down to $0 as well. This may make or break getting an approval regardless of scores, etc… Sure you have positive accounts on your report, owe nothing, always current – but – how does the bank know you can handle debt?
Say you have a $1500 limit on a credit card and the balance is $0, that’s great! HOWEVER you’ve only carried a statement balance of $200 (highest). Well, how does the bank know you can handle a $5000 line? Or a $30,000 auto loan? Or a $400,000 mortgage? They don’t. And it may be the reason for your application being denied. Now what if you carried a statement balance of $1300 out of the $1500 and paid that down to $0? Well… It helps to prove you can handle what is given to you, and it provides a ‘backbone’ to your profile. When it comes to credit, every little bit helps.
Now you should always avoid carrying a balance, as that can bring down your score, so if you want to raise your reported utilization, be prepared for a dip until the account is paid down/off. Accounts typically report statement-to-statement, so if one month reports $1300, and it’s paid down/off by the next statement date, then it will show $0 again. And this does not have to be a monthly habit. As long as that account reports to your profile, the account will show limit, current balance, highest balance and payment history. Doesn’t matter when the highest balance reported, once it’s there, it’s there. The account balance being as low as possible and payment history are the important pieces going forward. A common practice is treating your card as if it was a bank debit card for a month. Meaning you’re using a credit card to pay for things you typically use cash or available funds in your bank account for. Some examples are: cell phone bills, cable bills, car insurance, groceries, etc… Just be sure to set aside the amount(s) you’re charging, so you can pay the bill in full when you receive your statement. Also, there may be interest factored into your bill, so please review your account(s) terms and conditions.