Improve Your Credit Score Using a Credit Card

I recommend keeping a credit card or two. It’s the easiest and cheapest way to improve your credit score.

Be a “Transactor”

Transactor is a term used by the credit card industry to describe people like me. Trust me, it’s not a term of endearment. I’ve embraced the nickname, and you should too. Be a transactor!

A transactor sucks all the good out of using a credit card but suffers none of the bad, much to the credit card companies’ chagrin. Transactors enjoy:

  1. An improved credit score: Using a credit card in transactor mode improves your credit score with every on-time payment.
  2. Enhanced cash flow: Keeping your money around in your account longer improves its utility.
  3. Insulation from identity theft: Since you haven’t actually paid for anything yet, it’s a lot easier to settle disputes with vendors. And credit card companies are surprisingly cooperative when you have a conflict.
  4. All those rewards: Whether it’s cash back, free travel, or some other perk, those rewards sure add up!

Besides always paying on time and never carrying a balance, here are a few more behaviors to add to your transactor persona that will help you improve your credit score using a credit card.

  • Never “overutilize” your credit card by charging more than 45% of your credit limit on any of your credit card accounts during a pay cycle. The credit score algorithm views that as a big negative. This is true even though you’re paying the balance off in full every month.
  • Only keep credit cards that you use regularly. Underutilizing your credit card is also scored as a negative, so close cards you rarely use. If you stick to the suggested utilization limits on your remaining credit card(s), closing one down won’t negatively affect your credit score.
  • Stay away from “department store” credit cards that only work at the issuer’s store. It’s easy to accumulate a lot of them. Merchants offer discounts on purchases if you agree to open an account. Close them all down. Just having them open hurts your credit score.

Over time, your good transactor habits will improve your credit score using a credit card by overcoming any transgressions from the past. Don’t use that high score very often, though. Best to pay cash, even for major purchases.

Sleeping with the Enemy

It’s tough dealing with an entity whose main goal is to trick you into owing them more money, but that’s what you’re up against. Credit card companies make it so easy for you to screw up. Pay late or for less than your owed balance, and you’ve activated a high-interest loan.

Credit card companies love it even more when you choose the minimum payment. Now there’s a good chance they can earn double-digit interest off your debt for decades. Choose the minimum payment option and you’ve become their ideal customer.

If you look closer at the first page of your credit card bill, you’ll see information informing you how long it would take to pay off your debt if you just paid the minimum payment each month. You’ll see it literally does take decades, not months or years.

Do you think that startling revelation is printed on the front of your credit card bill out of the goodness of that mega-corporation’s heart? Give me a break.

Carrying a Balance

When I say carrying a balance, I specifically mean you didn’t pay off your last credit card statement’s balance in full and are being charged interest. Never let that happen again.

Don’t believe the common fallacy that you have to carry a balance to improve your credit score using a credit card. Even if you pay off your statement balance in full each month, as I insist you do from now on, it’s still considered credit by the credit score algorithm. On-time payments show up as a positive on all the credit reports.

Schedule Payment on the Due Date

I recommend dealing with your credit card bill as soon as it becomes available. With most credit card companies, you have access to your statement a good three weeks before it’s due. That gives you plenty of time to do what you need to do to make sure you’ve got sufficient funds in your account to cover it.

Make note of the day of the month your credit card company releases your statement and get in the habit of reconciling and scheduling a payment within 3 days of that date each month. Remember to schedule the payment for the actual due date, not the day you’re scheduling the payment. This may be easier said than done.

When making an electronic payment, the due date is never the default date. You need to change it to the due date, which should be three weeks away if you’re doing it right. Just another game the credit card companies play in the hopes of getting their money sooner.

Don’t worry if your due date falls on a weekend or holiday: Scheduling on that date still counts as an on-time payment.

I remember in the not-so-distant past, if your due date fell on a non-business day and you scheduled your credit card payment then, you were not only charged a late fee, but interest on the couple of days it took to clean up the mess and resubmit your now higher payment.

Now, I love it when the due date for my credit card bill falls on a weekend or holiday. I enjoy scheduling it then, knowing they can’t pull their old tricks.

Government regulators over the years have tried to reel credit card companies in a bit to level the playing field with the consumer. Still, somewhere there’s an employee of your credit card company thinking hard, trying to invent a new way to trick you into paying them more money.

Recently, my credit card company mysteriously quit emailing me notices when my statement was available. Another time, they switched my statement’s due date. I may be paranoid, but I interpret those actions as a ploy to throw me and others off our game so we make a mistake.

Be vigilant my transactors!

If You’re Carrying a Balance

If you’re carrying a balance on your credit card, don’t schedule your payment on the due date. Make credit card payments as soon as money becomes available. As a transactor, you never want to find yourself in this situation. Take pride in paying what you owe each month.

If you’re carrying a credit card balance, living paycheck to paycheck, and need help managing your money, read my free e-book Best Debt Elimination Plan. If you prefer, purchase the very affordable paperback or listen on Audible.

Eliminating your unwanted debt may be a lot easier than you think.

Annual Fees and Credit Cards

Should you pay an annual fee to get more perks? It depends on your individual situation, but my short answer is no. There are plenty of cards with no annual fee that offer great rewards.

The exception is if you’re a heavy user. For example, before Covid, I’d travel quite a bit for business. I gladly paid the $99 annual fee for a card in return for double, triple, or sometimes quintuple rewards on my travel expenses. My wife and I rarely had to pay for our leisure travel given all the rewards I’d rack up.

I’ve since switched to a card without an annual fee because the utility of the card is now much less since I’m not traveling as much. Do your research and pick the card that’s best for you.

[Best Money Newsletter originally published 2023 0929 on the Harvest Moon]