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Avoid these mistakes and keep your credit score high

September 8, 2016 | Posted by Blair Warner | No Comments

good credit scores
Building a great credit score takes time, but, unfortunately you can destroy your score in what seems like overnight. One simple mistake can cost you up to 90 points. According to FICO, if your credit score drops from 770 to 675, the interest rate you could expect to pay on a mortgage would cost you an extra $24,722 on a 30-year $200,000 mortgage, due to an interest rate increase from of only a 1/2 point (0.50%).

Here are three of the biggest mistakes to avoid if you want to keep your score high— and your interest rates down:

1. Most importantly, make sure you pay every bill on time each month. Missing only one payment can cost you dearly. Missing a payment is defined as being 30-days late, or, said another way, missing a payment and not making it until the next month when you make two at once, called “catching up”. If you have excellent credit and become 30 days or more late on one account, you can expect to lose 90 or more points. For some people, the easiest way to avoid a mistake is to set up auto-pay with all of your creditors.

Most people are not surprised that a late payment can hurt their credit score, but they are often shocked by how many points you can lose for a single late payment.


Follow Upgrade My Credit on Twitter Tweet this: If you become 30 days or more late on ONE account, you can expect to lose up to 90 pts on your credit score.

2. Second, watch those medical bills closely. Unpaid medical bills are often quickly referred to collection agency and become a collection item on your credit report. Although many of these bills end up with agencies because of confusion during the billing process, the collection item reported to the credit bureau looks like a default. Take control, and aggressively follow up with your medical providers and insurance company. It is a good practice that if you think you owe the doctor or hospital money, do not wait for them to initiate calling you.

A collection item like this can take 70 points or more from your score. The balance does not have to be big. Even if the balance is relatively small it has essentially the same effect as a large balance.


Follow Upgrade My Credit on Twitter Tweet this: Unpaid medical bills are often quickly referred to a collection agency and become a collection item on your credit report.

3. Third, pay close attention to your utilization ratio. You may not be familiar with this technical term used throughout the lending and credit industries. To calculate utilization, divide the statement balance on your credit cards by your total available credit. For example, if you have a $1,000 balance on a $10,000 credit card, your utilization is 10%. People with the highest credit scores have a utilization across all of their accounts below 10%. It is recommended to be below 30% utilization ratio at minimum. Higher than that you begin to reap the biggest damage to your credit score. Have you heard of “maxing out your credit cards”? That is basically 100% utilization ratio. If you have only one credit card and use the full limit every month, your 100% utilization ratio could be costing you 90 points.

Pay down your balances and keep old credit cards open to ensure your utilization stays low. It is worth repeating: Keep your revolving (credit card, etc.) utilization ratio lower than 30%, and preferably 10%.


Follow Upgrade My Credit on Twitter Tweet this: Pay close attention to your utilization ratio on your credit report. Go here to learn how to avoid a high ratio.

Hope this has helped. Here are some more articles you might be interested in:

By Blair Warner, Sr. Credit Consultant, Chief Editor

How Do I Get My Free Credit Reports?

October 14, 2015 | Posted by Blair Warner | 1 Comment

How do I get my free credit reports
In today’s information age it is becoming common knowledge that people living in the United States are entitled to a free credit report once a year. This is a right given consumers in the 2002 version of the Fair Credit Reporting Act (FCRA). What is not so clear is the answer to the all-to-common question, “How do I GET my free credit reports?”

This short, but concise article will show you how to get your free credit reports.

How do I get my free credit reports?

As mentioned above, under federal law, the three major credit reporting agencies – Equifax, Experian and TransUnion – are each required to provide consumers with one free copy of their credit report each year. The official website is AnnualCreditReport.com.

you can request your report from each of the big 3 credit reporting agencies, by either ordering and viewing each report online, or requesting that a copy be mailed to you. You’ll have to provide personal information to verify your identity and current residence when you order.

It’s a good idea to print a copy of your report if you find you need to dispute information on your report, or at least save it as a .pdf file for later review.

You may prefer not to order your report online, or have trouble answering the security questions. You can order your reports by phone by calling 1-877-322-8228. You can also request your file by mail, which will require you to print the order form you’ll find online and mail it to each agency with the required identifying information.

Note: Getting your free annual credit report does not hurt your credit rating.

Some experts recommend staggering your requests for your reports so that you get one from each agency every four months. For example, January you order your Transunion report, May your Experian report, and September your Equifax Report. This approach is fine if you are one who stays on top of their debt payments well, with pretty good scores, and you are not planning on applying for any new credit in the near future.

One of the problems with this approach is that these agencies don’t share information with each other, not to mention that not all data furnishers report to all three agencies. This means your reports will more than likely vary significantly, not giving you a complete picture of the credit profile lenders see. Furthermore, if there are errors on your reports, or if you become a victim of identity theft, you won’t discover it for several months.

Finally, please note that the free credit reports at AnnualCreditReport.com do no supply you with your credit scores.

Related Article: 3 Good Reasons To Question What’s On Your Credit Report

Credit Monitoring Services

If you’d like to have regular access to your credit reports as they are updated, you will most likely have to subscribe to a credit monitoring service, for which there will probably be a recurring monthly fee. Be careful. There are some credit monitoring sites not as good as others. Our favorite paid site that we have been using for years in our credit consulting business is Privacyguard.com and instructions for pulling your credit so that we can give you a free credit report evaluation can be found here. You get all three full reports, and all three VantageScore credit scores. Privacyguard.com gives you a 14-day trial for $1, and then only costs $19.95 per month for monitoring. Monthly monitoring is not necessary all the time, but we do recommend it if you are in credit repair and re-building phases, or looking to do something requiring credit in the near future. If you only want your credit reports for one month, you can order them for the $1 and make sure and cancel before your 14-day trial is up by calling the 800-number. (We are NOT affiliated with privacyguard.com)

Has this been helpful? Please feel free to comment or share on social media. We like helping people.

Tweet for creditTweetable Takeaways Include:

  • There is only one place where your credit report is 100% free, with no bait and switch, or small print (Click to tweet)
  • The Fair Credit Reporting Act (FCRA) requires the three major credit bureaus to provide one free credit report per year. (Click to tweet)
  • Most lenders use FICO (credit scores), especially mortgage lenders. (click to tweet)

By Blair Warner -Certified Credit Consultant

3 Good Reasons to Question What’s on Your Credit Report

October 6, 2015 | Posted by Blair Warner | 2 Comments

Are you sure that everything on your credit report is yours and is correct?

Question what is on your credit reports


Recently a friend of mine recently built his first house from the ground up. Unfortunately, he said he would never do it again. All the horror stories you hear about dealing with permits, contractors (and sub-contractors), material suppliers, time-lines, budget-overages, etc. are all too often true. Some consider it worth the hassle and many, like my friend, do not. Like anything, experiences differ.

My friend’s biggest regret was that he didn’t monitor the process and details enough. I hate to say it, but he put too much trust in the hands of his builder. It’s not that builders can’t be trusted, most can, but the fact remains, they are building YOUR house, FOR YOU, and it is in your best interest to stay on top of things.

When it comes to your personal finances and debt management, including how items are reported on your credit reports, it is no different. It is your responsibility to “stay on top of things”, because it is in your best interest to make sure everything on you credit report is yours, and is correct.

One or two errors can have as much as a hundred point influence on your score, depending on the circumstances. It is important to question what is on your credit reports. Tweet this….


3 Good Reasons to Question What’s on Your Credit Report


1. Credit data furnishers make mistakes
I am sure this comes as no surprise, but the furnishers of your credit data make mistakes. Credit furnishers include anyone that has extended you credit and reports to the credit bureaus like banks, credit unions, auto lenders, credit card companies, cell phone providers, delinquent medical bills, even unpaid taxes, just to name a few. They either have your information incorrectly in their files and when they send it to the credit bureaus it is reported incorrectly, or the error actually occurs in the transmission of data. There are some that even intentionally and unscrupulously report your information wrongly so that they can get more money out of you or, at the very least, make life difficult for you when you apply for new credit somewhere else. To make matters worse. The credit bureaus are not required to verify the accuracy or validity of information sent them until you, the consumer, initiates it.

2. The big 3 credit reporting agencies are separate, independent companies
Unfortunately, it is not common knowledge that the big 3 credit bureaus, Experian, Equifax and Transunion are 100% independent of each other. They are not government agencies or even GSEs (government-sponsored enterprises), like Fannie Mae or Freddie Mac. They are for-profit companies no different than Walmart or Apple, and are publicly traded. This means they are competitors in this fiercely competitive, and lucrative credit reporting and data market. Not surprisingly, then, they do not share or cross-check information about you or your credit history with each other, and an error caught and corrected at one does not effect the others. Additionally, since not all credit data furnishers (creditors) report to all three bureaus, your reported credit information will be different for each bureau, resulting in different profiles and scores.

It is a widely publicized fact that over 70% of credit reports have errors and as much as 33% of those are significant enough to effect you getting the credit you need. Tweet Tweet



3. Identity Theft
Someone’s identity is stolen once every 2 seconds in the United States. Need I say more? If you don’t monitor your credit reports on a regular basis, and question anything that looks suspicious, especially if you don’t recognize it as your debt, you could be a victim of identity theft and not know it until it is too late. The sooner you can catch it, the least damage will occur. Believe me, you want to catch it early. We help people who have been a victim of identity theft, and it is a nightmare. This reason alone should be enough to prompt you to check your credit reports regularly.

There are a few other good reasons to question what is on your credit report, but we will go over them in our next post. Stay tuned.

Don’t regret not “staying on top” of what is reported on your credit reports. We at Upgrade My Credit recommend checking your credit reports as often as possible, but at a minimum, a couple of times a year. There are two ways to get and monitor your credit reports, and we cover them in a recent post. How To Get Your Credit Reports

Related Article: Can you really get your credit reports for free?

If you remember only one take away from this article it is this:

If you see something on your credit reports that is not yours or looks suspicious, let your doubts turn to questioning it, and do something about it. Don’t delay! Click to Tweet

If you need help, we are here for you!


By Blair Warner – Certified Credit Consultant

3 Simple, Yet Important Credit Tips

April 2, 2015 | Posted by Blair Warner | No Comments

You Need to Know these 3 Tips for Managing or Repairing Your Credit

3 Credit Tipsby Darren Robinson, Guest Contributor

Want to buy a house? Don’t miss these 3 valuable tips anyone can do for building great credit in order to qualify for the best mortgage rates!

When it comes to securing financing for a new house or an existing property, getting a great mortgage rate is at the top of all of our lists. This is probably because even a small difference in your mortgage rate can make a BIG difference to the total interest you’ll pay over the lifetime of your mortgage and overall amortization.

The truth is that getting a great mortgage rate often comes down to having great credit.

But did you know that having no credit can be just as damaging as having bad credit?

Did you know that credit reporting agencies don’t verify the information that is given to them? Or did you know that your credit can affect more than just your ability to qualify for loans? In fact, it can affect many of your everyday purchases, from cell phones to insurance to public utilities!

So if you’re looking for tips to improve or repair your credit, read on for valuable advice and recommendations to manage your credit and improve your financial situation you can start today!

First, always make at least your minimum payment on time on every loan, credit card or other debt you owe.

You may think that you can miss a month and then pay extra the following month—but that’s not how the credit card companies operate (or calculate interest). Instead, your required payment will be considered late or delinquent. Most companies will report even one missed payment to the credit reporting agencies – and this can damage your credit score. So make at least the minimum payment on every loan, no matter what, to keep your credit healthy and in good standing with any debtors you have, as well as have the best chance of a high FICO credit score.

Related Article: How Are FICO Scores Determined

Second, set up pre-authorized payments so your bills are paid automatically.

As I mentioned above, missing even one payment can affect your credit. Debtors don’t care if you intentionally or accidentally forgot to make a payment. They only care if you make your payments on time, every time.

Maybe you simply forgot to pay a bill because all of your bills are due on different days and you don’t have an organized system to keep track of them. In that case, setting up pre-authorized payments can be a lifesaver.

If you prefer not to use preauthorized payments, setting a reminder on your cell phone or computer can be another great way to make sure your bills are always paid on time. Paying your bills becomes effortless so you never miss a due date. You’ll also save money by avoiding unnecessary interest charges.

Lastly, request a copy of your credit report at least once a year and review it thoroughly.

In Canada, you can contact one of two credit bureaus (Equifax or TransUnion) directly to request a free copy of your credit report. In the U.S. you can go to http://annualcreditreport.com to get all 3 credit reports from Equifax, Transunion and Experian.  Verify the accuracy of ALL information, including your personal information, loans, credit cards, etc.

Take note: Credit bureaus don’t verify the information they get from your creditors so it’s up to you to make sure all the information is accurate! Otherwise, you could get a nasty surprise since inaccurate information or information about a loan you don’t recognize could signal that someone may have opened an account in your name, or even possible identify theft.

Address any inaccurate information as soon as possible so that you can be on your way to improving your credit.

For more tips on managing and repairing your credit you are in the right place. Upgrade My Credit is here to help. To get straight forward advice and tips so you can qualify for the best Barrie mortgage rates, visit my website or give me a call.

By Darren Robinson, Mortgage Broker

Darren Robinson is a Barrie mortgage broker, dedicated to offering the best mortgage strategies. He helps people qualify for difficult mortgages and loans. Visit his blog for home buying tips and mortgage renewal tips or call him at 705.737.6161!


Build Credit With a CD-Secured Loan

December 7, 2014 | Posted by Blair Warner | No Comments

You have to have credit to get credit

No matter how much you may not like debt, even if all you ever want to do is buy a house someday, or a new car with credit, you have to already have credit to get the new credit. I am asked all the time “what is the best way to build credit?”. The best way is to have at least a couple of open credit cards with at least a 12-month history. If you don’t have any credit, or your scores are too low you can get a secured credit card. However, an often overlooked very effective method of building credit is by getting a CD-secured loan. The best part of this method is you don’t actually go into debt to do it. CD Loans from Banks What is a CD?

I suggest going to your bank where you have an account with a financial banking history, first. If you prefer to go somewhere different, then credit unions are usually the most CD-loan friendly. When my 18-year old daughter wanted to start building credit she went to our local Educational Employees Credit Union (no affiliation), opened a checking account, then proceeded to get a CD-secured loan. Search the internet for credit unions in your area, or ask around for for the best options. In order to save time, pick up the phone and call, asking if they offer CD-secured loans, and what their requirements are.

Here is how it works:

1. Find out the minimum amount required for opening a CD. Every place is different. For the purposes of building credit it doesn’t matter how big the CD or loan is, just that you make your payments on time. In my daughter’s case she only needed $500 to open a CD, actually opened two of them.

2. After the CD is set and the certificate in your hands, walk directly over to the loan department and tell the loan officer you want to open up a CD-secured loan. She will know what you are talking about. Borrow the same amount of the CD, dollar for dollar. The CD secures (backs) the loan in the case of default and since it is almost like cash and at the same bank as the loan, easy to liquidate in the case of default – which you are not going to let happen, right?

3. Take the loan proceeds and put it in an account at the same bank with auto draft set up for making the loan payments. Again, the loan officer and any banker will know how to set that up for you. It is a common procedure. At the end of the loan term your loan is paid off, and you still have the money in the CD earning interest. Granted, these days, CD rates are not very attractive, but remember, the purpose is to build credit.

Tip: You can ask the loan officer to amortize the loan for 3 years with a balloon note (when the loan note is due) for 12 or 18 months in order to lower your payments if necessary. Keep in mind, though, that this means the loan will still have a balance at the end of the loan term. (Definition of amortization)

The key to this method of building credit is that you don’t go into more debt, per se. You are using your own money to build credit. Also, the interest rate is only 2% above the CD rate. For example, if you are earning 1% on your CD, you only pay 3% on your loan.

Note: This type of loan is an installment loan. Go here for a definition of an installment loan. There are only three types of loans: installment, revolving and mortgage. FICO likes to see all three on your credit report for a good mix of credit.

There you go. If you need to build better credit, new credit, or even recover from a bankruptcy, a CD loan is one of the best ways to add credit history showing you can pay back an installment type loan. Good luck!

By Blair Warner, Sr. Credit Consultant

What is a Mortgage Pre-approval?

October 7, 2014 | Posted by Blair Warner | No Comments

home buyer's checklist - pre-approvalIf you have even mentioned to a Realtor or mortgage professional that you are thinking of buying a home soon, you no doubt have heard the term “pre-approval”.

What is a mortgage pre-approval?

First, let’s clarify what a mortgage pre-approval is NOT. It is not the same as a pre-qualification. The pre-qualification process most often includes pulling your credit score and getting some information from you either verbally or from an application. No verification of any kind occurs. Mortgage pre-qualification happens when your lender approves you as the borrower for a certain amount to buy a house (how much house you can afford), and that you qualify on a least a preliminary basis. A pre-qualification is a minimal first step before most Realtors will begin showing you houses.

A mortgage pre-approval is more detailed. This process also includes pulling your credit score, but includes verifying income with paystubs or a W2 tax form, collecting bank statements, etc. and can sometimes even be submitted to underwriting. Mortgage pre-approval positions a buyer to better negotiate a purchase because the seller knows your offer is backed by a lender. Mortgage approval comes after pre-approval.

What do you do if you don’t qualify for a mortgage pre-approval?

If there are credit or debt road blocks to obtaining a pre-approval, or a pre-qualification, for that mater, now would be the time to start taking steps to improve your credit, and if necessary, contact a certified credit consultant. Don’t let it discourage you. You are on the road to home ownership and WILL eventually start looking for your dream home; you just need to get your ducks in a row, first.


For more details on mortgage pre-approval and why home buyers should get pre-approved for a mortgage go here –> (courtesy of Amerifirst Home Mortgage)


Posted by Blair Warner – Credit Consultant and Chief Editor of UpgradeMyCredit.com

FICO Makes Needed Improvements to Their Credit Score

August 8, 2014 | Posted by Blair Warner | No Comments

Recent changes to the way FICO calculates their score could help more home buyers qualify for a mortgage. TWEET THIS…

FICO Credit Score - FICO 9

The New FICO 9
FICO announced yesterday some changes in their analytics which is designed to provide improved credit scores. Not very creatively called FICO 9, the changes should result positively for home buyers and home owners wishing to refinance, allowing for more precise scores commensurate with the credit risk they represent. Of course, time will tell once we see it kick in and are able to assess the results on a large scale.

Medical Collections
With the new changes, FICO has reduced the impact of medical collections on FICO scores by differentiating medical collection from non-medical collections, and even bypassing paid non-medical collection agency accounts. That means it will stop including in their calculations any record that shows a paid or settled collection account. FICO states that this change is expected to increase the median FICO score for consumers whose only derogatory references are unpaid medical collections 25%. This is a huge win for consumers.

Get a FREE credit report analysis by a certified credit consultant here ->

Benefits For Those With Limited Credit
The latest model will also measure a consumer’s payment history in degrees of risk rather than in absolutes, such as simply paid or not paid. Another improvement reflects a better analysis of reports with limited credit history, or thin files, as it is often called.

From FICO.com: “FICO Score 9 uses a more refined treatment of consumers with a limited credit history and those with accounts at collection agencies, so that lenders can grow their credit and loan portfolios more confidently,” said Jim Wehmann, executive vice president for Scores at FICO. “By applying innovative predictive modeling techniques on recent data to capture consumer credit behavior, FICO Score 9 will extend FICO’s leadership in providing the credit score that most accurately and fairly defines U.S. consumer credit risk.”

FICO has said their new FICO 9 Score will be available this fall and “will be the most consistent FICO Score across all three credit bureaus.” It is used by 90 precent of all U.S. consumer lending decisions, with 25 of the largest credit card issuers and 25 of the largest auto lenders. The only caveat is that it does take a while for a broad spectrum of lenders to adopt FICO’s updates. When they do, though, it is indeed going to improve the lending/borrowing world in the U.S.

References:
FICO.com website
Wall Street Journal article
Chicago Tribune Article

By Blair Warner – Chief Editor and Sr. Credit Consultant of UpgradeMyCredit.com

*FICO, FICO Score, and FICO 9 are trademarks of the Fair Issac & Company.

6 Credit Tips to Remember When Buying a House

July 11, 2014 | Posted by Blair Warner | No Comments

Guest Author: Dan Moyle of Amerifirst Home Mortgage

highlighted credit tips

Credit advice abounds on the Internet today. A lot of it is great advice. Much of it is suspect. There is everything from where to pull your credit, to how to have a good score, and even how to dispute errors on one’s credit report, but when you’re a home buyer looking to ensure that your credit is mortgage ready, how do you know what is important to “highlight”?

Additionally, credit advice for general purchases or buying a car can differ from home-financing tips, not to mention, your FICO score can vary, depending on who pulls it. A consumer-pulled score will likely differ from when a car dealer looks…which will probably be different than when a mortgage consultant pulls your credit score. It also matters which financial institution that’s looking at the credit history and the score. A store offering zero-down credit with their store card, for example, may not look as far back as a mortgage banker, or they may not look at medical collections the same way, either.

A lot is riding on your FICO score when you’re looking to buy a house. So, it benefits you to have a few tips to keep in mind if you’re considering a purchase in the future, near or far?

“Highlight” these 6 credit tips when you’re getting on the road to mortgage-ready credit.  Tweet This…


1 – Pay your payments on time, all the time. Whether you’re 6 months away from buying a house or 6 years, paying your bills on time is a big one. Late payments can negatively affect your credit score for years. Sometimes “things come up,” and a late payment just happens. Fortunately, some bills have grace periods. Make sure that if you’re going to be late on a payment, it’s one with a grace period. The ones without, should be paid first. Then make sure you pay the late ones as soon as possible. Again, late payments can have a major impact on your credit score. Payment history actually makes up about 35% of your FICO score.

2 – Don’t close credit accounts, yet. Paying down balances to zero is generally a great idea. However, don’t close that account just yet. Wait until you talk to a mortgage consultant about your FICO score in particular. A varied, seasoned credit history helps your score. That credit card you opened up your freshman year at college shows that you’re a long-term consumer. That helps. Don’t max it out, but keep it at about 30% of the limit or less. Keep it at zero, just make sure you use it occasionally. A long history with various lines of credit – credit card, car payment, insurance, cell phone bill – shows that you’re a “good borrower.”

3 – Keep an eye on your credit history. Checking your credit often is a great way to make sure no one is stealing your identity. You have the right to check your score with each of the major credit bureaus once a year. This means you can do it all at once, or each quarter check with a different bureau. Keep on top of fraudulent charges or other issues so you’re not surprised when a creditor pulls your FICO score. Preparation is vital.

4 – Don’t open line after line of credit. When you’re getting close to buying a home and you’re ready to get your mortgage pre-approval, it’s not a good idea to go buy a new car, motorcycle or a bunch of furniture on credit. Remember: your mortgage pre-approval is based on your current financial situation. If you change that drastically, your pre-approval could turn into a denial.

5 – Avoid major purchases. Even if it’s not on credit, a major purchase during your mortgage pre-approval time frame can sap your cash reserves. A vacation or new appliances might have to wait until after you close and move into the new house.

6 – Finally, try to avoid job changes. Whether it’s leaving your job, or a big change to your hours worked, changes in employment can sometimes have adverse effects on your home buying journey. If you worked a ton of overtime in the months leading up to your mortgage pre-approval, cutting way back on your hours before you close on the mortgage could affect your full, official approval. Keep things as even-keeled as you can.

One of the best things you can do as you consider launching your ship on a home-buying journey, is to talk to your local lender about mortgage pre-approval. Make sure you’re on the right track with your finances before you go house hunting. Tweet This…

Maintaining good credit is not rocket science, but it certainly takes diligence, awareness and work. Tweet this..


Author bio: Dan Moyle is the Creative Director of Marketing at AmeriFirst Home Mortgage. AmeriFirst believes in education rather than flashy sales techniques. An educated home buyer is a powerful home buyer. Dan loves to write and give back to his community.


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Posted by Blair Warner, Chief Editor and Sr. Credit Consultant of UpgradeMyCredit.com

What is Credit Card Utilization Ratio?

May 24, 2014 | Posted by Blair Warner | No Comments

Credit Scores Are Effected by Your Credit Card Spending Habits

credit cards Arlington, Fort Worth, Dallas, Texas There is a lot of confusion around how credit scores are effected by one’s credit card use. In fact, most of us don’t think about any particular strategy or method to buying things using credit cards except not to go over the limit and to make our payments on time. Have you heard of revolving debt ratio, or credit utilization ratio? In today’s post, an often misunderstood concept of revolving credit utilization ratio will be clearly explained so that your credit profile from month to month is looked more favorably upon by FICO, and thus, optimize your score.


First, revolving credit is a unique type where you are given what is also called a line of credit. This means you are given a certain maximum amount of credit that can be used anytime and is replenished each time you pay it back, making it available again for use. (Dictionary.com definition here). The most common example of this type is credit cards.

Revolving Debt Ratio

Revolving debt ratio as applied to credit cards is simply the ratio of the amount which has been used (charged) on a particular credit card at the time of calculation to that card’s maximum available credit. For example: If you have a card with a $5000 credit limit and you have used $1000 on purchases, then your utilization ratio for that card at that current time is 20% ( $1000/$5000 = .20 , or 20%). This would apply to business lines of credit and home equity lines of credit the same way. Tweet This Example

Why is this important, you might ask? FICO has said on their website that revolving debt ratio is one of the factors it considers in calculating your score, and can account for up to 30% of your FICO score calculation. The the lower the ratio, the better one’s score is, and the opposite is true, of course, the higher the ratio, the lower one’s score. The common phrase “maxed out” comes to mind. When credit cards are maxed out, that means all available credit has been used and a 100% utilization ratio has been reached. FICO “penalizes” consumers for maxing out because it shows they possibly rely on borrowing too much (or are in too much debt), and/or may not be the best credit and debt managers.

FICO does consider other aspects of credit utilization ratio on your credit profile to some degree, like how many accounts have balances, and even installment loan utilization ratio, but revolving debt ratio is by far the most important and easiest to influence when trying to optimize your credit score.

Clear as mud? Please feel free to ask us any questions you may have on this subject.

Has this been helpful? Please feel free to comment or share on social media. We like helping people.

Tweet for creditTweetable Takeaways Include:

  • In today’s post, an often misunderstood concept of revolving credit utilization ratio will be clearly explained. (Click to tweet)
  • When credit cards are maxed out, all available credit has been used and a 100% utilization ratio has been reached. (Click to tweet)
  • Revolving debt ratio is by far the most important and easiest to influence when trying to optimize your credit score. (Click to tweet)

By Blair Warner – Upgrademycredit.com Chief Editor and Sr. Credit Consultant

How Not to Improve Your Credit Score

May 9, 2014 | Posted by Blair Warner | 1 Comment

stop doing these things to repair your credit

When asked what is the best way to improve your credit score most people would answer that paying your bills on time is a good thing. A recent survey conducted by VantageScore Solutions and the Consumer Federation of America supports that If they don’t know anything else about credit and debt management they at least know this basic, somewhat commonsense key to good credit. This one important practice applies no matter which particular scoring model is used. For example, FICO has indicated that as much as 35% of your FICO score comes from payment history (which includes making your payments on time). However, all you have to do is search the web and a plethora of advice pops up that quickly can feel overwhelming. Not all of it is good advice, either, and, frankly, could hurt your score rather than boost it.

STOP, BEFORE YOU DO THAT!

Here are some actions to avoid if your goal is to improve your credit.

1. Keeping a Running Balance

It’s a common misconception that carrying a balance on your revolving credit like credit cards will help your credit scores. (Tweet This) Many well meaning people tout that FICO likes to see a running balance on your credit card account and will “give” you more points toward your score if they see a balance at the time of score calculations. It’s a myth. Proponents of this thinking go like this: The purpose of credit cards is to buy things on credit (meaning borrowed money). It’s the convenience of buying something now, and paying later. Credit card issuers make their money on the interest they charge for you to use their money, so to speak, and they don’t start charging interests unless a balance is carried over from one reporting period to the next. Makes sense for the bank to hope you carry a balance. If a cardholder pays their balance off each month, the bank does not make any money. Likewise, say these myth propagators, FICO does too, and rewards you for carrying a balance. Read my lips: IT’S WRONG.

For scoring purposes, it’s different. FICO is not concerned if there is a balance, per se, but rather, they ARE concerned with your utilization ratio – how much you use compared with your credit limit. The less it shows you have used of your available credit when they take a snapshot of your credit activity, the less the ratio is and the better it looks to their score algorithm, thus, a higher score. Understanding revolving debt ratio is important to understand because it contributes to as much as 30% of your FICO score.

Running a balance in order to raise your score has the added risk that you will use more and more of your available credit, and coupled with interest charges, just puts you more in debt.

2. Buying Unnecessary, Often Large, Items on Installment

We all know that you have to have credit to get credit, and, therefore, must use credit, but one of the biggest mistakes we make when using credit and especially for the purpose of building good credit is to succumb to the “buy now, pay later” temptation and buy things we don’t really need now, on a type of credit called installment loans. Installment loans as a loan type are the least important type of credit for building your credit score. It only contributes toward 10% of your score, and even then, not directly but only as a part of what FICO calls one’s mix of credit. Additionally, it increases your indebtedness for the entire length of the loan term. Don’t go out and buy that large screen T.V., or car, or new living room furniture on installment if you can wait, and especially if you are in a credit building phase.

3. Closing Old Accounts

There are finance “gurus” preaching that the best thing to do is just pay cash for everything and forget about credit saying, “if you can’t afford to pay cash you don’t need it”, and then commence to advise their listeners to cut up their credit cards. This advise sounds good on the surface and in theory would be nice, but it is short-sighted, and forgets that even if the only thing you ever do on credit is get a mortgage to buy a home, you have to have credit to get credit – not to mention mortgage lenders like to see 2-5 open trade lines for mortgage approval. Since FICO considers the length of credit history as one of the determining factors in calculating your score, don’t indiscriminately go on a card-closing-frenzy.

By Blair Warner – Sr. Credit Consultant


Photo Credit: © Brunofoto | Dreamstime Stock Photos & Stock Free Images

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