Revolving credit accounts (credit cards) are the most “active” accounts on your credit report. They have aspects to them that no other credit account has. The main difference between a revolving account (credit card) and an installment account (auto loan) is the “utilization” of the credit line.
Installment loans are fixed payment loans that have the principle balance reduced on a scheduled payback through the term of the loan. On an installment account, it’s not possible to increase the balance by using the credit line. This is only possible on a revolving credit line.
Revolving credit accounts impact your credit scores on multiple fronts. They include credit utilization (balance / limit as a percentage), payment history, age, and credit mix. Installment accounts only have payment history, age, and credit mix that are reported to the credit bureaus to effect your rating.
It’s important to review how your revolving credit accounts are reported to the credit bureaus. Review the “balance” and also the “limit” reported. If your balance is higher that the reported limit on the account, this can significantly lower your credit scores. Pay the balance down below the limit, or best below 10% of the credit line to improve your scores.
Keep an eye on your credit limits on your credit cards. Banks can increase or decrease your credit limits based upon your performance. If your bank feels you are a credit risk (missing payments, maxed out credit lines, etc..) they can lower your credit limits on your credit cards which can further lower your credit scores. Credit card banks often check into your credit with a “soft pull” or a “account review inquiry” that doesn’t impact your credit scores, it just allows them to see all of your other credit accounts’ performance. If they see risky credit, they may lower your credit limit or even close your account.
And lastly, monitor your credit monthly. There are many credit monitoring sites and most credit card banks offer free credit monitoring. Check yours to setup your monitoring alerts.
For a personalized credit check up, feel free to contact me direct for a credit report consultation and review.
President and Certified Credit Expert
There are many resources for credit tips out there, they come from family, friends, professionals, and the internet. Some are useful, others are simply myths.
I’m starting a new blog series that will be quick and factual tips on how to improve or maintain a good credit score. They will be easy and to the point tips to introduce into your credit habits so that you can help yourself to a higher credit score.
Today’s Quick Tip:
Pay down your credit card balances. Credit card balances can raise or lower your credit score significantly. They control 165 points on the FICO scale.
It’s best to carry no more than 10% of your credit limit (example- $100 balance on a $1,000 limit) on your credit cards over a billing cycle. Low credit card utilization conveys responsible credit usage.
If you have specific credit questions, feel free to contact me at my office to discuss and problem solve your credit issues.
President and Certified Credit Expert
1. Become an Authorized User
“One tried-and-true trick is to have someone with great credit add you as an authorized user to a card that they’ve had for a long time,” says Casey Fleming, author of The Loan Guide: How to Get the Best Possible Mortgage.
Using this method, you can piggyback off someone else’s good credit. Authorized users benefit from responsibly managed accounts because these accounts will be listed on the user’s credit report. But both you and the account holder need to be wary – if they aren’t as financially responsible as you think, or if they use their card irresponsibly, your plan can backfire and both credit scores could suffer. (Note: Authorized users can request delinquent accounts be removed from their credit reports; primary cardholders not-so-much, so be sure you’re not overcharging.)
2. Request a Credit Limit Increase
You can ask your credit card providers to increase the limits on all the cards you own. If you have a history of timely payments with your credit card provider, there’s a good chance they will negotiate. By increasing your credit limits, you’ll be improving yourcredit utilization rate, which is the amount of debt you’re carrying versus your total credit limits — and is a major contributing factor to your credit score.
Note: This will only work if you don’t increase your spending. If your credit card issuer raises your limit by $1,000, and you immediately start racking up charges that eat up the difference, the increased limit won’t do much good. Experts recommend keeping your credit card usage at no more than 30%, with an ideal balance at 10%. (You can check your credit utilization rate by viewing two of your free credit scores on Credit.com.)
Keep in mind, too, a request for a credit limit increase could result in a hard inquiry on your credit report, which can ding your credit scores, so use this strategy carefully.
3. Pay Down Your Cards
To the point above, your credit utilization rate will also improve if you pay down your credit card balances. If you have some extra funds, consider making extra payments on your credit card rather than dropping $100 at Chili’s this weekend. Doing the former can make a real difference and is a decision you’re unlikely to regret.
“Paying down your credit card balances to under 30% of the limits” will net results, says Fleming.
4. Check for Credit Report Errors
There could be an error on your credit reports that are weighing your scores down — and, is so, its removal could quickly improve your standing. You can pull your credit reports for free each year at AnnualCreditReport.com. If something is amiss, be sure to dispute it with the credit reporting agency in question. Most credit report disputes must be resolved in 30 days; a few can take up to 45 days. You can learn more about disputing errors on your credit report here.
5. Ask About Rapid Rescoring
If you’re applying for a mortgage, one lesser-known trick is to ask your lender about a rapid rescore. Rapid rescoring services are usually provided by mortgage lenders when applicants are on the cusp of qualifying for a better interest rate.
Rapid rescoring can to help update credit reports or fix errors quickly. If you recently paid off a debt, or have proof that a negative item on your credit report is inaccurate, you can provide that documentation to the lender. The lender will then request a rapid rescore on your behalf, and either absorb the cost or pass it on to you. You’ll want to ask your lender ahead of time whether you should expect charges for the service.
“If you are working with a mortgage company for a loan, they would handle this for you and it should not [drastically] mark up the costs,” says Tal Frank, president of PhysicianLoans, a niche mortgage company. “The rescore is the quickest way to see a change in your score once balances have been paid down and repairs have been made. It can be as quick as a one- or two-day turnaround time.”
I talk to a lot of people every week about their credit scores. I spoke with a gentleman yesterday that was telling me about his credit score issue.
He was recently out of the country for a couple months and one of his accounts’ auto pay amount changed which only covered part of his monthly payment. The bank noted this on the account and reported him late 30 days because the full payment amount wasn’t received.
Prior to this event his credit scores were in the 800’s, now they are in the high 500’s. It had taken him years to achieve such a high credit score, and only days to lose that score.
Payment history is the biggest factor in your FICO score. It amounts to 35% of your credit rating.
If there’s anything you do with your credit, make absolutely sure you get your monthly payment (in full) in…
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According to a 2013 survey conducted by Experian, 83 percent of Americans have checked their credit scores. The good news, though it could even be better, is that half of those respondents would like to IMPROVE THEIR CREDIT SCORES —they just do not know how.
If you notice a drop in your credit scores, there is a reason. Start the discovery process by checking the risk factors you received with YOUR CREDIT SCORES, and ask yourself the following questions:
Missed payments can cause your credit score to drop, and can also result in late fees or increased interest rates. As items go from 30, to 60, to 90 days late or more, your credit score can drop even further. Never let it get to that point. If you are having trouble making payments, notify your lender. There…
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Credit scores can take a hit over the holidays if you put your purchases on your credit cards. Credit utilization composes 30% of your FICO scores, which comes only 2nd to your payment history (35% of your score).
If you carry high balances on your credit cards each month, your scores are lowered because of this. It’s best to carry no more than 10% of your credit limit on your credit cards each month for a good credit score. You can literally experience a 50-100 point score drop if you max out your credit cards, or even worse go over the credit limit.
If you find yourself in a position where you’ve maxed out your credit cards and can only make the minimum monthly payments, it would be a good idea to investigate a new “balance transfer” credit card.
These types of credit cards will offer you O% interest for…
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I review dozens of credit reports every week. And when I go through the account info, the first 2 things I look for are payment history (any late payments and how long it’s been since reported) and balances on credit cards or credit utilization (percentage of used credit).
These 2 categories make up 65% of a persons FICO score, which can impact scores significantly.
If your credit card balances are reporting over 30% of the credit limit, it’s lowering your scores. First course of action would be to pay those down and rapid rescore those balances (takes about 7 days to update). Once updated it will drive up your credit scores. The higher percentage used before the update, the higher the score increase. If your balances are over the limit and you pay down below 30%, the score increase will be significant. Never let an account report over the limit…
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