Why Doesn’t My Credit Score Increase When I Pay My Bills on Time?

There is a common misconception that just paying your bills on time will increase your credit score. While the reverse is true, which means, if you do not pay your bills on time, your credit score will decrease. Simply paying bills on time will increase your credit score till a certain point but after that you will be stuck.

Think of this as buying an air ticket. Safety is probably the most important factor and you expect that every airline has taken care of it. As a result when you select an airline, safety is almost never on your mind. So it is never a deciding factor, unless of course the airline has a poor safety record. Safety is a hygiene factor and not a determining factor.

Similarly your lenders expect you to pay on time and by doing so, you are merely doing what you are expected.

FICO says that 65% of the total population pays their bills on time and therefore unless you are doing badly on that count, most of the times it is not really a “determining” factor on whether you get credit or not.

Your credit score is made of five main components and while your Payment History comprises of 35% of this score, it is not enough to push you to the league of the people who get the best credit deals.

To really get at the top, you need to work on the four other aspects:

  1. The amount of money that you are using on your card (30%)
  2. Length of your credit history (15%)
  3. New Credit (10%)
  4. Other factors like the mix of credit etc. (10%)

I have found that a good way to increase your score is to keep a few credit cards that do not have any fee and then not use them so much. That way, your available revolving credit becomes much more and the percentage of it, that you use, also goes down adding up points on your credit score.

This is a guest post from Manshu at OneMint. OneMint is a website created and managed by a finance MBA and provides resources on investing ideas, personal finance, credit cards, mutual funds and the broader macro economic environment.

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One Response to “Why Doesn’t My Credit Score Increase When I Pay My Bills on Time?”

  1. Manshu |  Oct 08, 2008 at 8:22 pm

    Thanks for letting my post appear on your page Sun!