Available Credit

You know, as weird as this is going to seem, the fact that you actually USE a credit card occasionally can affect your credit score!

Let’s just say that you needed to buy a new computer because the old one blew up… so, rather than take the funds out of savings, you take advantage of a deal where you can get 0% financing if you pay within six months or a year.  That sounds pretty good, right?  Yes, it does.  So, you go ahead, order the computer that you need, and you use the credit card that offers you the 0% financing deal, planning to pay it off within the terms that you’re given.  All is good, right?

Well, maybe not… a couple of weeks after you buy your computer, you get an alert saying your credit score has dropped 10, 15, or even 20 points!  And that’s not so good, is it?   Kind of makes you think twice about using those cards at all, doesn’t it?

So, why did your credit score drop when you actually used that credit card?

Well, you see, not only is your credit score based on your payment history, but it’s also based on how much credit you have available at any one time.  And if you use a credit card, it can reduce your “available credit,” causing your credit score to drop… and if your available credit is teetering on less than the 65 or 70% the credit bureaus like to see?  Then you could see a significant change in your credit score.

What can you do to prevent your score from dropping and/or can you fix it after you’ve seen a drop in your credit score due to a reduction in available credit?

There are really two ways to fix this problem.  The first, and most obvious, is to simply pay down the credit card that you used to make the purchase/purchases in the first place.  Typically, once you’ve done that, your score will bounce back very quickly.   Or you can simply increase the amount of available credit that you have by requesting a credit line increase or getting another credit card with a large enough credit limit to offset the balance that you are carrying on your current credit cards.

Either way you choose to go, the key to maintaining your credit score is to make sure you keep your available credit at or above 70% of your total credit line (all combined accounts).