2 Credit Rules That Don’t Make a Ton of Sense

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The world of credit is not without humor, so stipulated. At least most of what we know about credit reports and credit scores seems to make common sense. You miss payments and your scores go down, or you make your payments on time and stay out of debt and your scores go up. There are three nationally recognized credit reporting agencies and we are entitled to free copies of our credit reports once every 12 months.

These things make sense, but not everything relative to credit reports and credit scores is as logical. In fact, some things are downright illogical. For example, did you know that:

Your FICO credit scores would be better if you had overall credit card utilization of 1%, rather than 0%.

If you’re not familiar with credit card utilization, you can bone up on the topic here. In general, your scores will be better with lower utilization, that’s no secret. This suggests that the best utilization percentage is 0%.

Don’t get me wrong: Having 0% utilization is great, really great but it’s not the optimal percentage for your scores. The challenge you’ll run into is exactly how to control your utilization percentage strictly enough to ensure 1% over any other percentage.

First off, if you’re in a lot of credit card debt, then it ain’t going to happen because your balances need to be well under control in order to pull this one off.

Second, you have to remember that the percentage is based on WHAT’S ON YOUR CREDIT REPORT, not the actual balance of the card.

What’s on your credit report is going to be what’s on your previous month’s statement. That makes it tricky because your statement balance is a product of charges, fees, credits and payments. With so many moving parts, it’s going to be hard to get it to exactly 1%.

Finally, you don’t have to leave a balance on your credit card in order to get your percentage to 1%. Incidentally, the consumers with the highest FICO scores (760 and above) have an average utilization percentage of 7%.

You must be 30 days delinquent before a lender can report you as being late to the credit reporting agencies.

To me this makes absolutely no sense at all. If your credit card bill is due on the 1st of the month and your payment arrives on the 10th of the month, you’re late by 9 days, right?

From a credit reporting perspective, though, you’re still in the clear of suffering any late payments. According to the Credit Reporting Resource Guide, which defines how lenders must report items to the credit bureaus, “For consumer reporting purposes, an account is not deemed to be delinquent until it is at least 30 days past the due date.”

What this means is if you don’t get your payment in by the due date, you have an additional 30 days to make the payment before your credit reports and credit scores could be negatively impacted. So, if you really want to split hairs, a “30-day” late payment on a credit report really means you at least 30 days late plus the grace period.

If it were me, I’d define a “30 day delinquency” as being 1-30 days delinquent, which seems to make more sense.

It’s important to remember that while you’re safe from a credit reporting perspective, you can still incur late fees from your lender, who wants to be paid by the due date. Some lenders will even allow you to go several cycles past due before they’ll report you as being delinquent to the credit bureaus. There’s no requirement to report you late right at 30 days.

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow John on Twitter.


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