Credit Scoring Expert speaks candidly about his personal growth and asks respected writers to share content to help others improve their life.

In my book, 7 Steps to a 720 Credit Score, we talk about the myths of the credit-scoring world. Here’s another one I just read about in YOU Magazine. In short, the myth says that if a credit card company authorizes an over-the-limit purchase, your score won’t suffer. After all, the credit card company authorized the purchase. YOU Magazine goes on to explain that this myth couldn’t be further from the truth.

The article is right on!

In my book, I counsel people to keep their balances no more than 30 percent of their limit. On a $5,000 credit card, this means your keep your balance no higher than $1,500. On a $10,000 limit, your balance should never be higher than $3,000. The credit-scoring bureaus want to see that you can handle credit responsibly, and anything higher than 30 percent suggests otherwise. If you actually go over the limit, even if the credit card company approved it, you have a double whammy: Not only do the credit bureaus worry that you cannot handle credit wisely, they also worry that you are getting yourself into a deep financial bind that is causing you to trespass into forbidden territory. Also remember that the credit card companies and the credit-scoring bureaus are two different things. They aren’t communicating with each other, and the credit-scoring bureau doesn’t know or care whether the creditor allowed the charge—they simply look at your balance, compare it to your limit, and start deducting points.

*You Magazine is an online magazine by Cindy Ertman and Linda Buchanan. The full article can be read at http://www.allaboutnews.com/vc.php?a=y&b=29&i=183&u=ceplatinum@aol.com

I talk to my clients a lot about the “two steps forward, one step back” of credit scoring, especially when their score dips unexpectedly.

One of my clients recently saw a ten-point decrease for no apparent reason. She had been improving her score, following the seven steps, so she was confused about the decrease. I explained that FICO’s scoring formulae places consumers into categories, and the formula changes slightly depending on which category you are in.

Let’s take a hypothetical situation and look at how this works. Pretend that you had a foreclosure a little less than two years ago. You fall into the category of “people with foreclosures in the past two years.” You also had a ton of late payments, before and after the foreclosure. Late payments represent “normal behavior” for people in this category, so each individual late payment isn’t judged as harshly. For instance, a person might have 20 late payments, and each one causes her score to drop by two points. Considering all of your late payments and the foreclosure, your score is 620. Now let’s say that her foreclosure becomes 25 months old. Suddenly, she’s moved into the “people without foreclosures in the past two years” category, and in this category, late payments aren’t considered normal behavior, so each late payments gets dinged more heavily. The good news is that her foreclosure aged, so her score jumped 50 points. The bad news was that her late payments are now worth five points instead of two points.

Previous score: 620
Foreclosure ages: +50 points
Difference in late payment: -60 points (20 late payments now worth five points each instead of two points each, a three point difference)
Current Credit Score: 610

In this scenario, your score actually decreases. But don’t worry, this really is a two steps forward, one step back process, and eventually, your score can increase much, much more. As your late payments age, your score will start jumping five points at a time, and within months, you will be well above the 620 mark and climbing toward 720.