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.
Credit Utilization 30%: This is the percentage of available credit used. We want to keep our balances below 50% of the limit ideally. This is where we will find the most room for improvement in most cases.
History 15%: This is how long our accounts have been established. A more established account has more value than a new one.
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.
Types Of Credit In Use 10%: How many accounts and which types. Having too many loans from finance companies (Beneficial Finance, American General, etc.) can bring down your scores.
Now that we have a little knowledge under our belts, here are the 2 things you can do in the next 30 minutes to gain some points very quickly
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.
As an example scenario, let's pretend that you have a credit card with a $5,000 limit, and a balance of $4,000 (80% utilized). You make a 10 minute call and get you limit increased to $6,500 which means now you are only 62% utilized. Much better, and immediately, your scores increase. Now we can do even better, which brings us to the next technique.
Lowering your balances to add more points. Continued from the above example, you are now utilized at 62% on your credit card. What this means is that you still have room to further increase your scores. If you coule put just $750 on this credit card, you could bring the current balance to 50% of your new credit limit ($6,500 credit limit, with a balance of $3,250). You might be saying that you don't have $750 to put down on your credit card. Ok, you could stop right here, since you already increased your scores, and you can most likely get the limit raised for all your credit card accounts. However, if you are trying to buy a home, or a new car, you can potentially save thousands, or even tens of thousands in interest on that new loan and even 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. In one case, a client paid down $450 on one credit card and was able to increase their scores so they could purchase their new home with zero down, instead of the $5,200 required down payment they were previously facing.
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.
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.
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.
Credit Utilization 30%: This is the percentage of available credit used. We want to keep our balances below 50% of the limit ideally. This is where we will find the most room for improvement in most cases.
History 15%: This is how long our accounts have been established. A more established account has more value than a new one.
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.
Types Of Credit In Use 10%: How many accounts and which types. Having too many loans from finance companies (Beneficial Finance, American General, etc.) can bring down your scores.
Now that we have a little knowledge under our belts, here are the 2 things you can do in the next 30 minutes to gain some points very quickly
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.
As an example scenario, let's pretend that you have a credit card with a $5,000 limit, and a balance of $4,000 (80% utilized). You make a 10 minute call and get you limit increased to $6,500 which means now you are only 62% utilized. Much better, and immediately, your scores increase. Now we can do even better, which brings us to the next technique.
Lowering your balances to add more points. Continued from the above example, you are now utilized at 62% on your credit card. What this means is that you still have room to further increase your scores. If you coule put just $750 on this credit card, you could bring the current balance to 50% of your new credit limit ($6,500 credit limit, with a balance of $3,250). You might be saying that you don't have $750 to put down on your credit card. Ok, you could stop right here, since you already increased your scores, and you can most likely get the limit raised for all your credit card accounts. However, if you are trying to buy a home, or a new car, you can potentially save thousands, or even tens of thousands in interest on that new loan and even 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. In one case, a client paid down $450 on one credit card and was able to increase their scores so they could purchase their new home with zero down, instead of the $5,200 required down payment they were previously facing.
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.
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.
About the Author:
With over 20 years in the consumer debt and credit field, Daniel R. Michaelson is one of the leading authorities on effective bad credit repair.
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