If you’ve experienced a recent financial hardship that caused your credit scores to drop, then you know it can be very hard to build new credit. Cleaning up past credit problems with credit repair can be expensive. Without good credit scores lenders will be hesitant to approve you for a new credit line. No one wants to be the first to find out if you’ve fully recovered or are still stuck in your downward spiral of debt. Not to worry though. There are solutions available that can help you reestablish your credit score without the expense of credit repair.
The 5 Factors That Determine Your Credit Score.
The first factor is your payment history. Your payment history accounts for as much as 35% of your credit score. Your payment history includes whether or not you’ve made timely payments on your debt obligations. This is the largest factor in determining your credit score and the area most credit repair services focus on improving.
The second factor that determines your credit score is the amount of credit owed. The amount of credit owed makes up 30% of your score. This is often the most overlooked aspect for improving your credit score and the secret behind this strategy.
The amount of credit owed is calculated by dividing your total outstanding balance by the total amount of credit extended to you. This ratio is known as your debt ratio. The lower your debt ratio the better your score.
3 Simple Methods to Improve Your Debt Ratio.
The first method to improve your debt ratio is to pay down some of your credit card balances. If you have the funds, then this is easy enough to accomplish. If you don’t have the funds on hand you can still get creative. Sell some junk on eBay. Have a garage sale. Get a second job. A little extra money goes a long way towards improving your credit score.
The second method is to increase your existing credit limits. If you have a good payment history, then all you need to do is call your lender and ask for a credit limit increase. Normally they can approve or decline you on the spot. AS long as you’re making timely payments, keep asking for credit limit increases every 6 months.
You should know that anytime you apply for credit the lender has the authority to pull your credit report, even if you’re only asking for a credit limit increase. This “hard” inquiry can have a negative effect on your credit score.
The last method is to open new credit accounts. When you open a new credit card, the new credit limit is added to your total credit available, which drops your debt ratio. The higher the credit limit you have the lower your debt ratio will be.
Mistakes to Avoid
I’ve seen some of my clients make the tragic mistake of closing old credit cards while trying to improve their debt ratio. This is almost always a mistake for many reasons. First, if the card has a balance on it, then the balance is still applied to your debt ratio, however the credit limit is not, since the credit is no longer available. This will instantly hurt your debt ratio.
Another reason this is a bad idea is because the number and age of your credit accounts affects your score as well. Closing your card will almost always have an adverse effect on your payment history.
In conclusion, removing inaccurate negative data from your credit report isn’t the only technique for improving your credit. By studying how your scores are formulated you can find some out of the box strategies, like adding an unsecured tradeline for $5,000 from www.build-credit.net, that won’t cost you a fortune that you can use to start improving your credit today.
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