Paying, not purchasing, improves credit scores

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question Dear Opening Credits,
I have stopped using one of  my credit cards, but make on-time monthly payments. If I just stop using this card (and continue making payments), will this hurt my credit score? Thank you  for your help! -- Corrine 

Answer Dear Corrine,
I'm glad you wrote because I love clearing up the vagaries of how and why creditworthiness is assessed! It can seem terribly complicated and strange, when in reality it's not. Once you understand the reason credit scores are set up the way they are, it all makes perfect sense. 

Before I give you the reasons, though, here is your answer: Using your credit card to buy things won't increase your FICO score (I'll concentrate on this particular scoring system, as it is the one that's most commonly used today).

"Really?" you may ask. Yes, really! In fact, I took your question to the source -- Anthony Sprauve, who handles the FICO score public relations division. According to Sprauve, as long as you're repaying the debt in a timely fashion and the amount you owe is steadily heading south, your FICO is on an upward trajectory. "Adding new charges won't do anything to help your score," says Sprauve.

And now the backstory ...

When you take out a loan, get a credit card or have a debt, whoever it is you owe will send information about those accounts to the consumer credit agencies (CRAs): TransUnion, Equifax and Experian. They compile the data into reports that other businesses can access. Your past credit behavior is an essential part of their qualification standards.

However, reading through all those line items can be such a chore. For that reason, credit scores were developed. Companies, such as the one that developed the FICO score, take the financial data from a report, weigh some activity more heavily than others, plug it all into a proprietary mathematical model, and voila! A score is born.

You may already know that payment history is the most important factor in a FICO, comprising 35 percent, and credit utilization -- meaning the amount you owe relative to the amount you can contractually borrow -- is next, at 30 percent. Length of credit history is 15 percent. Inquiries are 10 percent, so each time you apply for a loan or credit card, your score will be affected. Another 10 percent is the types of credit in use. Proof that you can use all kinds of credit products, from loans to the various types of credit cards, works in your favor.

To understand the reason for the order and emphasis, just put yourself in the position of a financial institution. What would you want to learn about a stranger before lending him or her money? Certainly it would be important to you that the person has a long track record of paying other people back, so you'd ask for evidence of a perfect payment history. Not owing to the hilt is a good sign, too, as is the ability to manage the full spectrum of credit instruments. If you find out that person is asking everyone and anyone for money that might be cause for concern.

More, you'd want all the attractive activity to be recent. Would you really care if the person's borrowing and paying activity happened many years ago? A lot can change in a short span of time.

And that's why evidence of regular, current credit use is also beneficial. Once you've deleted your debt, restart the borrowing and repaying process. This way you will be constantly adding positive data to your file, which will keep your scores in tiptop shape.

See related: FICO's five credit scoring factors

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Updated: 01-23-2019