February 12,2009
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Improve Your CC Score w/New FICO Rules, Pt.3
‘Utilization Ratio' and your score.Utilization ratio: If the advice you get along with your FICO Score suggests that you owe too much, understand that this usually means that you owe more than 30% of your maximum allowable on a credit card. If you don't believe the amount that you owe is stretching the limit of what you could pay, do one of two things:
- Request a higher limit: Call your credit card lender (or go on-line) and request a limit increase on your credit card. Calculate the amount you feel comfortable in owing and multiply that amount by three. Request an increase to give you that total amount and resolve to yourself to charge above 30% of that new limit. Thirty percent is the current utilization ratio that credit card lenders are seeking.
- Pay down debt: If you believe you are getting ‘tapped out' and nearing the brink of what you can pay at minimum then, now is the time to start paying-down the debt as much as you can. Once you pass that ‘event horizon' where the minimum payment is more then you can keep up with, you're ‘in a pickle'. By all means, don't let that happen. Call your credit card lender and request a reduction in interest. Sometimes a lender will devise a roll-over into a new account with lower interest without hurting you a bit. Note, also, that completely paying off a maxed-out credit can raise your FICO Score by 100 points (just as it had dropped by 100 points when you maxed it out).
New Applications: Ordinarily, a new credit card application every 6 – 12 months will not hurt you and can, ultimately, help you. True, you may take a 5 – 10 point hit on your FICO Score at the onset for each ‘hard inquiry'. But, after 6 – 12 months, a new credit card will be part of your history. If you remain in good standing, the importance of these inquiries will diminish and the added ‘credit available' may improve your ‘utilization ratio'. This could serve to raise your FICO Score in the end. This doesn't mean ‘going nuts' with new applications all at once. You must avoid the perception that you're going off into deep-end debt and on a wild rampage. Be care of patterns, they will be much more important with the new FICO '08 guidelines.