Saturday, 8 June 2019

Simple Step To Improve Your Credit Score Fast

In this article, I am going to focus more on how you can improve your credit score quickly. Most people will talk about making your payments on time and that is a very important part of your score, but I find that utilization is something that will impact your score much quicker

Let Get Started

Keep Your Utilization Low

What does that mean? in order for you to understand utilization first, you need to know how your credit score is calculated

  • 35% of your credit score comes from you making payments on time.
  • 30% of your credit score is your utilization
  • 15% of your credit score comes from how long you have had credit for.
  • 10% of your score is based on the mix of credit that you have
  • Last, 10% of your credit score comes from new credit that you have

We are going to focus on talking about utilization because it's worth 30% of your score, that is a big chunk of your credit score. There is a lot of points that you can lose if your utilization is not good.

What Exactly Does Utilization Mean?

Utilization is how much of your total credit you are using or your spending right now. Let's say you have a credit card and your total credit limit is $500, you are allowed to spend a certain amount out of that $500 each month without losing too many points from your credit score. How exactly are you going to know if the amount that you are spending is too much, in order for your utilization to be considered excellent, you need to have 0 - 9% utilization

  • Excellent: 0-9%
  • Good: 10-29%
  • Fair: 30-49%
  • Poor: 50-69%
  • Very Poor: 70% +

If you spend between 30 and 49% of your total credit limit then your utilization will be considered fair, here is your credit score is going to take a very big hit if you spend 70% or more, your utilization is going to be very poor. At this point, your credit score is really going to take a hit. Remember utilization is worth 30% of your total credit score, so that is going to impact your score. The first thing you have to practice using a credit card is self-control, keep in mind how much you should actually be spending regardless of what your credit limit is and that is the amount you should be thinking is each month

Here's a trick that I like to use that I find to be really helpful, I'd divide by 10 then spend.

Let me give you an example, my credit card has a total credit limit of $500 I'm going to divide that by 10 and I'm going to get $50, that is 10% but I want to be between 0 and 9% because I want my utilization to be excellent so I can get the most points in that category. In my mind, even though that credit card has $500 I can use each month I'm never going to spend more than $46 a month. That can be really hard. If I see something that I wanted that cost $100, I'll be like I've got $100 on this card I'll just pay it little by little, that is how you end up with a bad credit score over time, that becomes a habit and then you end up paying just the minimum towards your payments and you end up paying interest in all other things. You really don't want to get into those habits. Start strong, divide by 10 then spend.

One thing that I do want to talk about when it comes to utilization is that it doesn't just apply to one credit card or 2 credit cards individually, it actually applies to the total credit available to you. If you have 2 credit card what you are going to do is take the limit of each of the cards and combine them, let's say the first card has $500 but the second cards have $200, when you add those together now you have $700 is the total credit available to me. That is what I am going to go ahead and divide by 10, let's say $700 divided by 10 is $70, I'm never going to spend more than $70 a month on both cards combined. Find out what your total credit limit is then divided by 10 and that will give you an idea of what the maximum amount of money you should be spending each month. Go ahead and check online, look at all your credit card bills as they are right now, and see what can you do


Start making an aggressive payment towards those cards and get your utilization down to be between 0-9%. That will impact your credit score in a good way by the time you check your credit next month I guarantee it'll be much higher than it is now.

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