credit & debt

Why Is My Credit Score Dropping?

This reader is paying off debt, but it's not improving his credit score.

Q: I have been paying down debt and I haven't charged any new items, except on my American Express business account, which I pay off every two months. Yet my score has declined about ten points every month for the past five months. Shouldn't my score be going up?

Your American Express card may say it's a "business account," but if it appears on your credit report, the credit bureau considers it a personal card -- and transactions on it are factored into your credit score. So paying off your balance every two months is hurting you. Paying a revolving debt more than 30 days late is one of the red flags that can hurt your score, explains Steven Katz, a spokesman for credit bureau TransUnion.

"The computer model that generates your credit score is looking for a long record of credit accounts that you have paid on a timely basis." Katz recommends that if you cannot afford to pay off the balance each month, you should at least make the minimum payment.

Andy Jolls, of credit-education Web site VideoCreditScore.com, goes even further. He recommends making two payments each month so that your balance will be low when data is sent to the credit-reporting agencies. (The date of transmission may not be the closing date for your account.) That will improve your credit-utilization ratio -- that is, your current balance in relation to your credit limit.

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