Simplifying Your Financial Life

By I’RAISE School Social Work Intern Anthea Perkinson

In honor of Financial Literacy Month, here are a couple of ways to improve or protect your credit score, and make your monthly bill paying just a little bit easier.

Most of us have a stack of statements and invoices to pay each month for the products and services we use. These include utility bills, cell phone bills, gym memberships, insurance premiums (life, health, home, etc.), and usually a credit card balance or two for all the other things we buy.

What if we simplified the dreaded chore of paying these bills with checks and stamps? Many of these vendors allow customers to put their bill on a credit card for automatic payment at no additional charge. This is true for most cell phone bills, subscriptions, many gym memberships, insurance premiums, etc.

By transferring these bills to automatic payment by credit card, you now have many fewer checks to write and stamps to buy. And, all these bills will be paid on time, which is key to maintaining a good credit score. Just make sure that you pay that credit card bill on time by setting a reminder on your smartphone.

You can make this new bill management system work even better for you in two ways: optimize the credit card you use for your new system and make sure you manage your credit utilization ratio effectively. You could be receiving miles, points, or dollars back for the spending you put on your credit card—even these automatically billed expenses—and there are cards with generous rewards programs that do not charge an annual card fee.

Some good places to shop for a new credit card are Bankrate.com, Nerdwallet.com and MagnifyMoney.com. Be sure to review the details and fine print on any card you apply for so there are no surprises. Consult card ratings and reviews on these websites to help ensure you are picking the best credit card for your financial situation, current credit score and biggest spending categories.

The credit utilization ratio refers to the percentage of available credit that a consumer uses in a particular month. If you have only one credit card and no other outstanding loans (student, car, mortgage, etc.), your credit utilization percentage is calculated based on the credit limit for that one card.

• If you use more than 50% of your total credit limit on that card each month, this higher credit utilization will have a negative impact on your credit score—even if you pay the card balance in full each month.

• If you use less than 30% or less of your available credit limit each month, it will have a positive impact on your credit score, pushing it up over time. Using 50% of your credit limit is effectively neutral to your credit score.

Your credit utilization ratio is worth 30% of your overall credit score while your bill paying history is worth 35% of your overall credit score.1 If you can optimize both by automating your bill paying process and using the right about of your credit limit, building and maintaining a solid credit score is well within reach.

If your regular monthly spending currently uses more than 50% of your available credit limit, you may want to call your card company and request a higher credit limit. This is generally an automated call option on card company customer service lines: “Would you like to increase your credit limit?”

• When you indicate yes, you will be asked to say or type in your annual income and monthly rent amount. If you are approved after this data is processed, you will be told your new credit limit.

• If you are not automatically approved, you will be encouraged to speak to a representative for more information.

With a higher credit limit on your favorite money-back, points or miles credit card, you can keep earning rewards for your regular monthly spending—including all of your monthly automatic payment expenses—and should be better able to stay under the 50% credit utilization ratio that will keep your credit score strong.

1. There is more than one credit score available. This information is based on FICO scores. Some credit scoring formulas may vary.

Anthea Perkinson, social work intern at I'RAISE Girls & Boys International Corporation, is a current MSW student at the Columbia School of Social Work.

Anthea is a Certified Financial Planner and is the director of content development for Money Made Simple, a New York City-based nonprofit organization dedicated to high quality, free financial literacy education.

Prior to founding Monterey Associates, Anthea worked in retail financial services for 25 years. Most recently as a vice president at AXA Equitable Life (now Equitable Life Insurance Company) responsible for strategic account management for sales of annuities, life insurance and mutual funds through banks and independent broker dealers.

Anthea is a past president of the Financial Planning Association of New York and a former co-director of the chapter's Pro Bono Committee, which provides financial literacy education education and counseling to underserved populations in New York City.

As a frequent speaker on personal finance topics, she has presented to audiences at nonprofits including Career Gear, Project Renewal, Dress for Success, Working in Support Education (W!SE) and Sanctuary for Families. She has conducted classes on personal finance topics NYU, the Borough of Manhattan Community College, Westchester Community College, the New School, St. Bart's Church, the West Harlem Development Corporation and Eastside House.