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Dear Credit Card Adviser,

I want to understand why my credit score has dropped nearly 50 points in the past few years. I no longer have a mortgage or car loans, and I always paid my payments on time. I do have a credit card that I use for all my expenses so I can earn free money every quarter, but it is paid in full every month. I do not understand. Shouldn’t I have a perfect credit score?

— Robert

Dear Robert,

Getting a perfect credit score is not that easy. There are hundreds of variables that go into calculating a credit score, so don’t feel frustrated that yours isn’t perfect.

You can keep an eye on your credit score for free at myBankrate.

But let’s investigate why your credit score may have gone down. First off, paying off your mortgage or car loan doesn’t necessarily help your credit score any more than paying those obligations on time, says Jeffrey Scott, spokesman for FICO, the developer of the most widely used credit score.

“One of the most important factors in the FICO score is payment history,” he says. “Are you making payments on time, every time? That’s what really matters. There is no bonus for paying off loans early.”

But there’s no penalty for paying off your loans, so that doesn’t explain why your score went down. It only helps to explain why it didn’t go up.

The second biggest contributor to a FICO credit score, accounting for 30 percent, is amounts owed. Within this category is something called your utilization rate, or the percentage of available credit that you use on your credit cards. This rate is calculated for each credit card and for all of them combined. The lower your utilization rate for each card and combined, the better for your credit score.

In fact, a study by FICO found that consumers with the highest credit scores (above 785) used, on average, only 7 percent of their available credit on credit cards. That means they charge only $350 on a credit card with a $5,000 credit limit. Or, just $1,400 on several credit cards with combined limits of $20,000.

Loan officers that I’ve spoken to can’t say enough about keeping a low utilization rate, which they say separates those with great credit scores from those with only good credit scores.

Here’s something to remember: Paying off your entire balance every month is not reflected in your utilization rate or, ultimately, your credit score. The balance that is used to calculate your utilization rate is based on your last statement balance. So, you could charge $900 on a credit card with a $1,000 limit and pay it off the same month, but the FICO credit score will still consider a utilization rate of 90 percent.

That means you should check how much you’re charging each month and how that affects your utilization rate. If that rate is above 30 percent of your credit limit, consider these two options to lower your utilization rate and boost your credit score: First, obviously, charge less each month. Or, second, ask your issuer to consider increasing your credit limit.

You also could open another credit card to increase your total available credit and spread your charging among several cards, but your credit will initially take a hit when applying for the credit card. That ding will lessen over time and disappear altogether after two years.

If you think your utilization rate is OK, then pull your free credit report from for clues as to what is going on with your credit score. Equifax credit reports, for example, offer factors that could hurt your credit, according to company spokeswoman Demitra Wilson.

Experian credit reports have a section that summarizes potentially negative information based on the company’s experience with lenders, says Rod Griffin, director of public education at Experian. These could include late payments, public records or collection accounts, he says. To get specific risk factors that hurt your credit score, you would have to buy one. Good luck!

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