If you want to improve your credit score, the revolving debt ratio is one way to boost you to the next level. There are several ways to use credit cards to your benefit. And because the ratio is the second largest component in a FICO credit score (30%), it is important for maximizing your credit power.
With credit cards you want to share the debt among many different cards. For example, you have $5,000 in total debt and you have two cards with different limits. The first has a $5,000 limit and the second has a $10,000, but you are unable to completely pay off the card. The best way to maximize your credit is to allot two thirds of the total debt ($3,333) to the card with the higher limit and one third ($1,667) to the lower limit one. You have $15,000 in credit limit and $5,000 in debt, giving you a ratio of one third or 33%. If you only had the $5,000 limit card and the same amount of debt, you would be at 100% of your limit. You would also have zero available credit and your credit score would suffer. So sharing credit card debt among many cards is the best way to increase your FICO score with the credit scoring formula in this field. That is if you are unable to pay off the debt completely.
Even if you pay your balances in full every month, be sure to use each card at least once every six months. If you don’t use a credit card once every six months, the card becomes inactive with credit bureaus. Inactive accounts do not get benefits of a low debt ratio or average credit file age and will also lower your credit score. Consequently, you want to use your credit cards to keep them reporting as an active account even if you only use them minimally.
Finally, one of the worst things you can do to your credit score, in this field, is to kill your credit card. By closing a credit account, you raise your debt ratio and lower the average age of your credit file. If you close a 15 year credit card, it will not see its 16th or 17th year therefore reducing your average. If you have loan delinquencies such as late payments, your revolving debt can help save you. Follow these basic rules and your credit card’s average age and your debt ratio can work toward increasing your credit score.
To learn more about how you can help increase your credit score, go to Dr. Alan Rosenthal's website at http://www.financialsolutionservices.com where you can find more great information on credit improvement. And, you are cordially invited to sign up for a FREE Credit Repair and Enhancement Workshop by visiting http://www.financialsolutionservices.com/upcomingevents.html For additional information listen to one of Dr. Alan Rosenthal’s credit talks at http://www.financialsolutionservices.com/credittalks.html
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