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.
Now I will keep it simple and explain how your credit scores are calculated...
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.
Credit History 15%: A more seasoned account carry more weight than one that was just opened.
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.
Credit Types In Use 10%: The number of accounts in use, and the type of credit accounts. Finance company accounts are of the lowest value, and too many of them can cause a negative effect on your scores.
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.
Let's say for example you have a credit card with a $5,000 credit limit, and you currently have a $4,000 balance on it (80% utilized). After your quick phone call, they agree to raise your credit limit to $6,500 (now 62% utilized). This alone will immediately increase your credit scores. Remember in the "Credit Utilization" section above, we want to ideally keep our balances below 50% of the credit limit. This brings us to the next powerful 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.
Both these techniques are fast and easy, and have been proven to work time an time again. I have used them personally, as well as assisted clients with them. I am confident they will also work for you.
Bear in mind that these techniques are recommended to those with a clean credit history. Credit card companies are more willing to work with those that have an established history of making payments on time. If you have negative items on your credit, perhaps a more aggressive credit repair approach is more appropriate.
Jon Ochs has over 12 years of experience in the credit and debt field and is the founder/CEO of
NCA Credit Repair, one of the most trusted and respected
Credit Report Repair companies in the nation. Don't reprint this exact article. Instead, reprint a free
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