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It is important to understand how the three major credit bureaus, Equifax, Experian, and Transunion calculate your credit scores. This is not something that a lot of people know, and I am sure you have never been taught this information. Now I will keep it simple and explain how your credit scores are calculated... 35% - Payment History Your history of paying your bills (on-time, late, etc.). The largest factor of your score. Utilization of Credit 30%: This represents the percentage of available credit against the amount used. Here is where we will focus our activity for this article. Credit History 15%: How long your accounts have been open. Longer more established accounts are more positively weighted than newer accounts. Credit Inquiries 15%: Whenever you apply for credit, an inquiry is registered on your credit reports. If you get too many, it can have a negative effect. 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. Since we now have an understanding of how scores are calculated, now we can focus on a couple of things we can do right now to maximize our scores. 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. Bring your balances down! Let's continue from the above example where you are now 62% utilized on your credit card. If you were to pay down $750 on this card, you could bring the balance down to $3,250 on a card with a limit of $6,500, and that would put your at 50% utilized. Now not everyone has the ability to pay more than the minimum payment on their cards, and that's ok, you have already raised your scores. However, at 50% utilization, you will be able to maximize your scores. Now imagine if you did this on all your credit card accounts. Now, consider this... If you could raise your scores and get a better interest rate and lower monthly payments on a mortgage loan, or auto loan, you could save thousands over the life of that loan. Both these techniques are fast and easy, and have been proven to work time an time again. I have used them personally, as well as assisted clients with them. I am confident they will also work for you. 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.
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Jon Ochs has over 12 years of experience in the credit and debt field and is the founder/CEO of NCA Credit Repair, one of the most trusted and respected Credit Report Repair companies in the nation.
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