The first important step is to gain a basic understanding of how your credit scores are determined. I am sure this will be new information for you, since this is not taught to any of us in school. In fact, when it comes to the three credit bureaus, equifax, experian, and transunion, they prefer to keep everyone in the dark on how credit scoring works.
Now I will keep it simple and explain how your credit scores are calculated...
35% - Payment History Your history of paying your bills (on-time, late, etc.). The largest factor of your score.
Utilization of Credit 30%: This represents the percentage of available credit against the amount used. Here is where we will focus our activity for this article.
Credit History 15%: How long your accounts have been open. Longer more established accounts are more positively weighted than newer accounts.
Credit Inquiries 15%: Whenever you apply for credit, an inquiry is registered on your credit reports. If you get too many, it can have a negative effect.
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 we have a little knowledge under our belts, here are the 2 things you can do in the next 30 minutes to gain some points very quickly
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.
Here is an example of what can be achieved. You have a credit card with a balance of $4,000 and a limit of $5,000. This means you are 80% utilized. After using the above technique, your limit is raised to $6,500. Now you are only 62% utilized. Immediately your credit scores have increased. Keep in mind that we want to ideally keep our balances at 50% or lower compared to our credit limits. This leads us to the next tip.
Bring your balances down! Let's continue from the above example where you are now 62% utilized on your credit card. If you were to pay down $750 on this card, you could bring the balance down to $3,250 on a card with a limit of $6,500, and that would put your at 50% utilized. Now not everyone has the ability to pay more than the minimum payment on their cards, and that's ok, you have already raised your scores. However, at 50% utilization, you will be able to maximize your scores. Now imagine if you did this on all your credit card accounts. Now, consider this... If you could raise your scores and get a better interest rate and lower monthly payments on a mortgage loan, or auto loan, you could save thousands over the life of that loan.
These are very powerful techniques. I have seen this work for clients time and time again. One client recently was able to raise the credit limits on 3 credit card accounts and raise their scores by 105 points immediately.
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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Jon Ochs has over 12 years of experience in the credit and debt field and is the founder/CEO of NCA Credit Repair, a highly respected credit repair services company.
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