Question

scenario 2:
youve been eager to buy a new cell phone for months, and now youre ready to make it happen. you use your credit card to purchase the phone and you set up automatic billing to pay the monthly expenses. at the end of each month, you pay the credit card bill in full.
does your credit score go up or down?
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why does it go up or down?
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if your score goes down, how can you fix it?
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continued on the next page.
student activity: spot the credit crisis | 1

Explanation:

Credit scores are influenced by payment history. Paying credit card bills in full each month is a positive behavior. Credit utilization (the ratio of credit used to credit available) also plays a role. If the credit card balance is paid in full, credit utilization is low (assuming the credit limit is not extremely low compared to the phone cost). Opening a new credit account (using the credit card for the phone purchase) can initially cause a small, temporary dip (due to the "new credit" factor in scoring models), but if payments are made on - time and in full, the overall effect is positive.

Answer:

• Does your credit score go up or down? It goes up.
• Why does it go up or down? Because paying the credit card bill in full each month shows a good payment history. Also, if credit utilization (after payment) is low, it is beneficial. Although opening a new credit account (using the credit card) can cause a minor, temporary dip (due to "new credit" in scoring), the on - time and full payments override this for an overall increase.
• If your score goes down (in the very minor, temporary sense due to new credit), how can you fix it? Continue to make on - time payments. As time passes (usually a few months), the "new credit" factor's impact lessens, and the positive payment history will have a more significant influence on the credit score.