One of the most powerful pieces of knowledge you can have is understanding how the three major credit bureaus assign your score to you. Most often, people are never taught about their credit scores.
Here’s how it all goes …
Payment History – 35%
Your payment history is the biggest piece of the credit-score-puzzle. It indicates how well you’ve made payments to your creditors.
Credit Utilization – 30%
Your credit utilization is how much of your credit you’re currently using. An easy way to boost your scores is to keep your balances below 50% of your total credit limit.
Credit History – 15%
Your credit history reflects how long your credit has been open. Older accounts receive more positive weight than newer accounts.
Recent Inquiries – 10%
Your recent inquiries show any inquiry made to your credit report from a prospective creditor. Too many inquiries can cause your scores to be lowered.
Types Of Credit In Use 10%:
How many accounts and which types. Having too many loans from finance companies (Beneficial Finance, American General, etc.) can bring down your scores.
Now that you know a little bit more about credit scores, here are a few things you can do in the next half hour to add some more points to your score!
Raise your limits!
Raising your credit limits is much easier than you might think. Most people don’t realize that just by simply asking for a credit limit increase, you will most likely get one. We have proven this over and over again with clients. Just call the phone number on the back of your credit cards, and tell them you are considering transferring the balance to another card with a higher limit and lower interest rate, but that you would like to keep the account if they could just raise the credit limit. In my personal experience, it has worked 100% of the time. Often they will also lower the interest rate as a bonus. Lowering the interest rate will not help your credit score, but it will sure help your finances.
Let’s say for example you have a credit card with a $5,000 credit limit, and you currently have a $4,000 balance on it (80% utilized). After your quick phone call, they agree to raise your credit limit to $6,500 (now 62% utilized). This alone will immediately increase your credit scores. Remember in the “Credit Utilization” section above, we want to ideally keep our balances below 50% of the credit limit. This brings us to the next powerful tip.
Lower Your Balances!
Continuing from the example above, you are now 62% utilized on your credit card. This means you still have some room to further maximize your scores. If you pay $750 on this credit card, you will bring the balance down to 50% of the new credit limit ($3,250 balance on $6,500 credit limit). Now, you might be saying that you don’t have $750 to pay down your credit card. That’s ok, you could stop here, you have already increased your scores, and you can get the limit raised for all your credit card accounts. However, if you are trying to buy a home, or even a car, you can potentially save thousands in interest on your new loan and get a lower monthly payment, just by paying a little down on your current accounts. When that results in higher credit scores, you may qualify for much better loan terms.
All of the tips listed above have shown to be effective and powerful in helping to achieve even better credit scores. One past result showed that these tips helped to increase the credit limit on 3 credit cards, and scores were boosted by 105 points!
Keep in mind that these techniques work best for those who have a good credit history, and at least 3 open, established credit accounts. For those with more challenged credit or a negative credit history, a more aggressive approach and credit repair strategies may be more appropriate.
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