Tips For Raising Your Credit Scores

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.

I will do my best to keep simplicity in mind as I explain what makes up your credit scores:

Payment History 35%: This is the largest contributing factor for your credit scores and represents your history of making payments with your creditors.

Credit Utilization 30%: The percentage of available credit used. Keeping your account balances below 50% of the available credit limit will maximize your scores. For the purpose of this article, this is where we will find the most room to quickly increase your scores.

History 15%: This is how long our accounts have been established. A more established account has more value than a new one.

Inquiries 10%: When you apply for credit, an inquiry is made to your credit. If you have too many inquiries, your score can be negatively effected.

Type of Credit In Use 10%: Type of accounts, and number in use. Mortgage loans are the best, and finance company accounts are the worst.

Since we now have an understanding of how scores are calculated, now we can focus on a couple of things we can do right now to maximize our scores.

Increase your credit limits: This is actually easier than you think. It is truly remarkable what will be granted to you simply for the asking. What I want you to do is simply call each of your credit card companies and ask them to increase your credit limit. One technique you might also use is to tell them you are doing some financial house-cleaning and are considering getting rid of the card and using one with a higher limit and better interest rate, unless they can give you a better offer. In my experience, I have found this to be successfull 100% of the time.

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 segways to the next 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.

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.

These simple tactics are more appropriate for someone with a good payment history on established credit card accounts. It is recommended that you have at least 3 open credit card accounts to maximize your scores. One of these could be a department store account. If you don’t have enough credit, or have a negative credit history, perhaps more aggressive credit repair or credit building strategies would be more appropriate for you.