How is my Credit Rated? Part 2
July 5, 2009 by Matt Freeman
Filed under Buying a Home, Networking, Strategic Partners
Michelle Luker is back in the second part of a five part series regarding “how your credit is rated.” In part 1, Michelle explored how delinquency makes up 35% of your score. Today Michelle touches upon Debt Ratio which makes up the next 30% of your score.
30% of the credit score is derived from your revolving balances carried on accounts as they pertain to your debt utilization ratio.
Revolving credit cards make up a very significant portion of what ultimately determines your credit score. Your total revolving credit utilization ratio is calculated as follows: Divide your Total Open Revolving Credit Card Debt into your Total Open Revolving Credit Card Limits gives you your Credit Card Utilization Ratio.
Example: $15,000 of open credit balances divided into $75,000 of available credit card limits = 20% Credit Card Utilization Ratio (debt ratio for short).
The closer to zero you’re Credit Card Utilization Ratio is, the better your credit score.
Having a 0% debt ratio is ideal, so you want to keep your credit card balances as low as possible to maximize your credit score. If you are able to do so, you should pay off or pay down your credit balances to enhance our score.
Another step you can take to improve your credit scores is to lower your debt ratio by raising your current credit limits. Caution: You need to approach this matter with care. Call and ask each credit card company if they will crease your card limit based on a review of your payment history with them only. INSIST that you do not want them to pull your credit report and thereby create an inquiry that will damage your score. Some creditors will do this, some will not. I do not suggest letting them pull your credit if you plan to make a credit purchase in the next six (6) months since the inquiry will decrease your credit score.
Now you know that the most important factor in determining your credit score is based on the handling of your debt obligations
Whether you pay your creditor on-time is 35% of the score.
You also know that the second most important factor in determining your credit score is determined by the amount of debt you carry as it pertains to your revolving debt ratio.
Revolving account debt ratio is 30% of the score.
Contact Michelle Directly to see what steps you may take in bringing your score up to the highest levels.
Office: 916-652-9637
Cell: 916-316-0247
Fax: 916-644-6626
4804 Granite Drive, Suite F-3261
Rocklin, CA 95677
