How To Improve Your Credit Score Pt. 2
An additional thirty percent of your score is founded on your outstanding debt. Obviously, lenders have an expectation of you to use your credit cards, but they clearly want you to do so with caution. If you have three credit cards with a sum amount of $30,000 in available credit, they will examine how much of that money you are utilizing. In an unoriginal fashion, this is called your utilization rate. Don’t max those cards out! In fact, don’t even think about coming close to it!
It’s pretty simple to determine your utilization rate. Simply add up all of your outstanding balances and divide that by the amount of your total credit limit. This should come up with a number less than one. If it hits one, you are maxed out and out of luck!
Ready for some secret insider information? Most credit analysts (credit bureaus included) will suggest that you keep your credit utilization under thirty percent of the total limit. But here’s a trick. Be sure that you do this for each card. If you go over that threshold on one card, let’s just say for argument’s sake you max out one card, use only ten percent on another card and nothing on a third card, you are safely under thirty percent of the total limit, but you will still be slammed for utilizing so much of the limit on the first card. How much of your limit you use any month can also turn things around on your card. If you max out a card every month but pay it in full, it is still possible that you will be hit for reaching your limit. Credit card companies do not report if you have paid off your card, only how much you have spent.
Additionally, about fifteen percent of your score is based on your credit history, which does not work out well for college grads just jumping on the bandwagon. But, if you’ve been managing your credit well for a couple of decades, your numbers are likely to be pretty comfortable.
But don’t forget this key information. The higher you climb, the faster and further you will fall. If you have been doing an immaculate job of looking over your credit for two or three decades and one month you miss a payment, you automatically will get put into a much riskier credit category than your friend who pays a little late on her monthly payments.
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