When it comes to how to increase your credit score, there is a lot of misinformation out there. Â But never fear! Â Here’s a well thought out post from Mike Wickham, who does a great job for people needing a mortgage to buy a new home…
“Avoid delinquent payments and maintain low utilization ratios.
Delinquent payments reduce your score. Eliminating the delinquency does not restore your score to where it was, it merely prevents a further decline. Delinquencies stay on your record for 7 years, although their force will gradually weaken as on-time payments come in.
Shoot for low utilization ratios, below 33% on all your cards. The utilization ratio is the outstanding debt relative to the maximum amount of debt that the credit grantor has set on that card. For example, if the balance on a card is $2,500 and the maximum balance is $5,000, the utilization rate is 50%.
A card holder can reduce his utilization ratio by reducing his balance, and also by increasing the maximum balance. If a borrower has had a good payment record, the maximum can often be increased simply by asking.
If your card issuer does not report a maximum, your score will be calculated on the assumption that the highest balance ever reached in that account is the maximum, when in fact it could be well below the maximum. This raises your utilization rate (and lowers your credit score) for no good reason.
If a card has no reported limit, you can either request that the limit be reported, or terminate the relationship. Alternatively, you can shift all your balances into this account temporarily so that the highest balance comes closer to the unreported maximum.
In addition, don’t have too many cards or too few, about 4 or 5 old cards that you actively use is about right. New cards can reduce your score. Avoid department store cards, which will reduce your score.”
Copyright © 2016 The Mortgage Professor
Have a great week and stay warm!
|
