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.
Here’s a brief explanation of the system -
Payment History: 35%
Payment history makes up the largest piece of your credit scoring model. It reflects how timely you make payments to 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.
Credit History 15%:
How long your accounts have been open. Longer more established accounts are more positively weighted than newer accounts.
Recent Inquiries – 10%
Your recent inquiries show any inquiry made to your credit report from a prospective creditor. Too many inquiries can cause your scores to be lowered.
Types of Credit In Use: 10%
Types of credit in use lists both the amount and type of accounts that you have.
Now that you know a little bit more about credit scores, here are a few things you can do in the next half hour to add some more points to your score!
Raising Your Limits -
It’s often easier to raise your limits than you think it might be. You might not realize that most times, all you have to do is ask that your limit be increased and your wish will be granted. Call the customer service department of your credit card company and let them know you’re looking into transfering your balance to another card with a lower interest rate and a higher credit limit and that you’d like to keep your account with them, but only if they are willing to make the concessions you are asking for. A lower interest rate might just come with your new, high credit limit! A lower interest rate won’t help your credit scores, but it will definitely help your financial situation.
For example: Say you have a credit card with a $5,000 limit and your balance on it is $4,000. That would mean that 80% of your card is being utilized. One fast phone call gets your credit limit raised to $6,500. Your credit utilization is now 62%, which will vastly increase your scores. As stated above, keeping your balances below 50% of your limit would help you immensely.
Lower Your Balances: Referring to the example above, your credit utilization on your card is at 62%. There’s even more you can do to improve your credit with this one account! Bringing the balance down to 50% would mean making a one-time payment of $750. And even if you can’t afford to pay the $750, you’re still better off than you were before, thanks to the new high credit limit you received from that phone call you made. If you’re trying to make a big purchase (such as a home or a car), though, you’ll wind up saving yourself thousands of dollars on your new loan as well as being granted an even lower monthly payment, if you pay down your existing accounts. The result will be higher credit scores and your loan terms will be even improved as well!
All of the tips listed above have shown to be effective and powerful in helping to achieve even better credit scores. One past result showed that these tips helped to increase the credit limit on 3 credit cards, and scores were boosted by 105 points!
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.
