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Debt Consolidation Facts

1. If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will identify you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (Fair Isaac).

2. If you miss 1 or 2 payments on your credit card debt, the issuing company will skyrocket your interest rate to a whopping 27% - 30%!

3. Out of a random sample of 3 million American consumers (included in Experian's National Score Index), 51% of them have at least 2 credit cards and 14% of them have 10 or more credit cards.

How to Improve Your Credit Score - 4 Basic Things

A good credit score can mean the world when borrowing money for whatever reason, a mortgage loan, auto loan, home equity loan, etc. A good credit score means lower monthly payments and lower interest paid over the life of the loan. However, a bad credit score means the exact opposite, higher interest & higher monthly payments. In this article, we will tell you how to improve your credit score by following these 4 simple ideas.Note: Most mortgage lenders will look at your FICO Credit Score. We will therefore base our ideas on the FICO credit score.

FICO is a software that calculates your credit score and your risk levels of default, created by Fair Isaacs Corporation. Your Credit score is determined by your Credit Bureau and some of the factors involved in calculating your credit score include:

  • Credit payment history (whether you have been paying on-time or are delinquent)
  • Your current total outstanding debt
  • Frequency of applications for new credit
  • Time length of credit history

1) Pay Off Your Debts

To get good mortgage loan terms, you need to have a credit score in the 700 - 720 range. The expected national average is 723 according to Fair Isaac. What's the best way to increase your credit score in the short term? The best way is to pay off any high debt balances on your credit cards which could increase your credit score by a whopping 60 - 80 points overnight! Credit Bureaus look at how you handle credit card debt, whether you try to pay it off as fast as you can, or you are the type of person that only meets the minimum payment schedule. If you are determined to pay off your high credit card balance, this will reflect on your credit score and will net you favourable terms with mortgage lenders.

2) Never Use More than 50% Of Your Credit Limit

If you spend more than 50% of your credit limit every month, this indicates to the Credit Bureau that you do NOT have enough cash on hand to meet your monthly expenses. This will term you as a high credit risk and will actually reduce your credit score by 60 - 70 points overnight (according to Craig Watts working at Fair Isaac). You need to minimize your credit limit usage and keep your credit balances owed very low for atleast 3 months before applying for credit or a mortgage loan.

3) Don't Close Old Credit Cards

In the above bulleted list, we mentioned "Time Length of Credit History." If you have credit cards that are 4-5 years older, then it's NOT a good idea to close them down. Use those to maintain your credit history and use them responsibly! Furthermore, do NOT go out applying for new lines of credit at any retail store or bank, and do not go out asking for an auto loan, because that will decrease your credit score by a few points instantly.

4) Ordering Your Credit Report or Seeking Credit Counseling

Here are some myths that do NOT affect your credit score in any way.

  • You ordering your credit report from Experian, TransUnion or Equifax.
  • You going out to seek credit counseling or debt management services.
  • Mortgage or other debt lenders checking your credit score for any applications you have made.

Comments

Katrece Comments on June 4th, 2007

The information is very helpful.

Thank you!