Raise credit scores

How Many Credit Cards Is The Right Amount?

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Raise Credit ScoresThis question comes to me from a client in Kentucky.  There are a lot of theories on what is best and the credit bureaus won’t tell anybody their formula.  But after discussing with others who are in the credit education business we have generally come to the same conclusion.

The first part of the answer lies in the amount of available credit line you have.  Let’s say you have $2,500 of available credit line on two credit cards.  And that you have balances on Card A of $1,500 and zero on Card B.  In this scenario you will likely have a lower credit score because you are carrying 60% of the available credit line on one card when the optimum amount has proven to be around 30%.  This is the standard thinking in the industry

However, as one of my colleges points out, you would only be carrying a combined total of 30% when using the combined credit limits of both cards.  Based on the credit reports I have reviewed there is truth here as well and the likely answer is that both factors are involved in calculating your credit scores.

The second part comes from reviewing those same actual credit reports and seeing consumers who are carrying balances on say 4 to 7 credit cards and still holding 740 FICO scores and above.  What became obvious was that those with the higher scores were typically below 35% of their available credit lines. Those with scores in the 600’s were carrying a higher ratio to their overall credit lines

So…a possible way to raise credit scores if you are carrying ratios above 35% would be to apply for additional credit cards and not use them, thereby lowering your ratio of balances carried against your available credit lines.  Of course, the obvious and first step to be taken to raise your credit scores is to pay down your balances on the way to paying them off.

Raise Credit Scores By Becoming An Authorized User

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This will quickly raise your credit scores…

How to raise my credit scoresIn today’s world more and more is based on credit.  The ability to purchase, for emergencies, to qualify for a job and more.  The downside is that more and more companies (insurance companies especially) are using credit and credit scores to qualify you.  If you don’t have good credit (above 740 FICO scores) you will most likely pay higher rates and fees because of it.

Lenders are not the only ones using credit to qualify you!

One answer is to become an authorized user on someone else’s credit card that has a better credit rating. The process is simple, you and the other party (spouse, sibling, friend, co-worker, etc.) agree that although you are an authorized user, you will not use this account to purchase.  The agreement is only to have that good credit card history added to your credit profile and nothing more.  Let’s say this other person has had this card for more than five(5) years, that adds five years of positive credit history to your credit profile instantly.

But lenders know this trick, so why do it anyway?

Since 50% of your credit score is made up of using credit and credit history, this will definitely raise your credit scoresSince things like car insurance and home owners insurance are also based on having good credit scores, the impact will be to reduce the insurance premiums you will pay.  When it comes to a mortgage, this may not be effective as lenders often use their own criteria and often discount the credit history when you are an authorized user.

Too many benefits not to do this!

There really is no downside.  If adding that much positive credit history raises your credit scores say 100 points, you are at an advantage when you go to buy a car, furniture, appliances and more.  Even in applying for another credit card, your credit report will look great. You will need to monitor that account to be sure it remains in good standing.  Once you have re-established your won credit, you can drop the arrangement.