The Rule of 22

If you have ever read any of my books or any other articles I have written you undoubtedly have heard me talk before about the importance of how you manage your credit card debt in the eyes of your FICO score.  Some of the concepts and principles I teach I understand can be a bit confusing at times, so in an attempt to help you improve your score, but also make it easier, I am going to focus on the number 22 with this article.  By the time you finish reading this, you will understand why “22” is a very important number that can have a significant impact on your score. The key now is to understand “why” it’s important and how you use it to your advantage!

Most people have heard before that there are 5 components to your FICO score. They are:  payment history, debt ratio, average age of credit, mix of credit and inquiries.  My favorite (yes I just said that I have a favorite component of the FICO score) is “debt ratio”.  The reason for this is because of the 5 it is the least understood, but represents the single fastest way that with a little bit of knowledge you can positively improve your score in the shortest amount of time.  That to me is exciting!

The largest part of this category that is being measured is the balance compared to the limit on you revolving accounts, most commonly your credit cards.  As a simple example, if I have one credit card that is open and the limit is $500 but my balance is $250 that means I am using 50% of my available credit.  It’s simple math but here are the areas where the confusion comes in.  First, people will tell you all kinds of magic numbers or thresholds that you should keep this number under to improve your score.  Usually everyone that tells you that information is wrong.  The best place to be to earn the most points you can in this area of your score is between 0 – 10%.  So keeping your balance under $50 in this example is ideal for your score.  Knowing that and having it reported on your credit report that way are two different things.  A lot of time people understand this, but are surprised when their credit is pulled and find out the balance on the credit report shows something much higher than what they believe it to be.  Since the FICO score is only based on what it see’s on the credit report at that moment in time this presents a problem.  Credit cards have two important dates associated with them. The first is the statement or cycle ending date and the second is the due date.  The statement or cycle ending date represents the day the previous billing cycle ends AND the balance of the card is then reported to the credit bureaus.  Then your paper statement is mailed to you and you have a 21 day grace period in which to make your payment.  This is important because if you know the proper way to manage your credit cards your score might still suffer just because you are not paying the balance down on the right date!  To help you with this I am giving you the “rule of 22”.  Look at your credit card statement and whatever the due date is get in the habit of paying it 22 days BEFORE the due date.  If you follow this approach not only will your balance on the credit report be a more accurate reflection, your FICO score will also improve.  There you have it….The Rule of 22!

Author: Dan Beck

Dan Beck is a credit repair expert who teaches consumers how to create an "A Rated" credit profile. Would you like to receive a FREE Consultation with Dan? If so, click here.

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