Many people find themselves with a low credit score even though they always pay their bills on time. Many times instead of seeing their credit score get higher they see in lowering and simply don’t understand why. Although paying your accounts is the most important thing you can do to help your credit, there is another very important factor many consumers are not aware of.
Amounts Owed” accounts for 30% of your overall FICO score, second most important category right after Payment History (35%).
Why is Amounts Owed so important? If you borrow a substantial amount of money, you appear riskier. If you borrow up to your credit limit, lenders may worry that you’re facing financial troubles. And when you are faced with harder times, would you be able to keep up with your payments?
Credit utilization considers the amount you owe compared to how much credit you have available. The recommended ratio in general is less than 30%, while ideally 10% will keep you FICO score blooming.
The key ingredient is Credit Limits. You creditor might set up a credit limit, giving you access to a certain amount on your credit card, or approval for a loan. In order to keep a healthy credit score, not maxing out your credit card or loan approval amount is a really good credit practice. Consider the following examples;
– 2 credit cards, both with a credit limit of $1,000 each. On credit card #1 you have $100 balance and, on credit card #2 you have $100. Your ratio is 10%.
– Same scenario, 2 credit cards, both with a credit limit of $1,000 each, but on credit card #1 you have $200 balance while on credit card #2 you have $0. Your ratio is still 10%.
Now, closing credit cards accounts that have been in good standing might affect you more than help you. It goes back to credit ratio. Consider the following examples:
– 5 credit cards, all with $1000 credit limit. Credit card #1 has $500 balance and credit card #2, #3, #4 and #5 have $0. Your ration is 10%.
– But if you start closing your underutilized credit cards your credit utilization with credit card #1 goes thru the roof, next think you know now you are at 50%!!!
Amounts Owed reflects how much you owe each creditor individually and in total, making paying your credit cards on time just as important as how much balance you carry on them. In short, a summary of your credit utilization rate.
At Credit Services of America we specialize in Credit Repair, Debt Settlement, Student Loan Consolidation and Trade Lines. If you are struggling with credit ratios call us and find out how Trade lines can help you offset your ration and improve your overall credit file!
A Goal without a Plan is just a Wish. Give us a call TODAY at 844-FIX-URCR or click on the following link creditservicesofamerica.com to schedule your FREE consultation and create your personalize plan to achieve your credit and debt GOALS!
*Individual results may vary. Please call for details and to discuss your own individual