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Let me start off by saying that understanding how the three major credit bureaus arrive at your credit score is one of the most powerful pieces of knowledge you can have. Most likely this is not something that you have ever been taught. In fact, when it comes to your credit scores, the three major credit bureaus, Equifax, Experian, and Transunion, run sort of a "black box" operation. To explain what makes up your credit score in as simple terms possible, this is how it works Payment History 35%: This is the largest contributing factor for your credit scores and represents your history of making payments with your creditors. 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. Recent Inquiries 10%: Whenever you apply for any kind of credit, a credit inquiry is reported. Too many of these, and they can negatively effect your scores. 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. Ok, now we have some powerfull knowledge. It's time to put it to use with 2 things we can do in about 30 minutes to increase our credit scores... Get an increased credit limit. This is very simple to do, and I think you will be pleasantly suprised by the success rate if you just make a couple easy phone calls. Just pick up the phone and ask to raise your credit limit. Now you can also use my favorite strategy and say something like, "I am considering a balance transfer to another card with a higher limit and better interest rate, but thought I would see first if you would increase my limit and possibly lower my interest before I cancel this card.". I have found this to be successfull nearly all the time, both personally as well as with my clients. 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. 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 worked in the credit and debt industry for over 12 years and is the founder/CEO of NCA Credit Repair. You can learn more about establishing new good credit at Credit Learning Center.
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