How to improve your credit score. One tip I didn't know?

[sarah4554]

Did you know that one way to improve your credit score is to ask your credit card company for an increase in your spending limit. If you have debit of $2,000 on a card and your spending limit is on $2,500 it hurts your credit. But if you have a debit of $2,000 and ask your credit card company to increase your credit cards spending limit to $5,000 your credit score increases.

A third of your credit score is based on debt-to-credit ratio.

I always thought that a high spending limit hurt your credit score because it represented potential debt.

Did you know this? What are your thoughts on this? Doesn't it seem a little odd that the more potential debt you have the better your credit will be?

[Jacklad]

Originally Posted by sarah4554

A third of your credit score is based on debt-to-credit ratio.

Yes and no. It's actually more complicated than that (as if FICO wasn't already akin to black magic). That third looks at your credit utilization in two ways - both individually (i.e. how much "space" you have on each credit card) and total percentage (total debt/to total credit x 100). Best scores are 30% or less utilized on all cards *and* on total debt.

Originally Posted by sarah4554

I always thought that a high spending limit hurt your credit score because it represented potential debt.

Did you know this? What are your thoughts on this? Doesn't it seem a little odd that the more potential debt you have the better your credit will be?

High spending limits affect your credit score positively (as you noted) but may still affect your borrowing potential negatively. Your credit score is not the only factor lenders consider; they look at your income (credit score does not), total debt (again, credit score does not - there are debts that do not report, many mortgages for example), your debt service ratio (again not covered by the credit score). They also will look at your potential indebtedness, and this is where having too much available credit could potentially hurt. In practice, most lenders will simply ask that you close a few accounts.

We have tons of available credit - I mentioned to my husband that if we maxed out everything we could put ourselves in debt to the tune of $150k tomorrow , but also good credit scores and have never had a lender bat an eyelash about the potential for us to get into serious trouble. Go figure.

Jackie

[sarah4554]

Thanks Jackie that was very informative!

[Ima saver]

I was told by the agency that my score would be higher if I had a mortgage loan. I have had my house paid free and clear for years, but that doen't count!! Oh well, I have an 817 out of 850, so that is ok.

[Jacklad]

Originally Posted by Ima saver

I was told by the agency that my score would be higher if I had a mortgage loan. I have had my house paid free and clear for years, but that doen't count!! Oh well, I have an 817 out of 850, so that is ok.

<laugh> I was told that I should carry balances instead of paying everything off every month. Apparently 20-30% utilization is optimal for the score (0% isn't).

The whole mystery of FICO (and even the fact that it is so mysterious) doesn't make much sense. Black magic, I tell you!

Jackie

[Ima saver]

I pay off my balances every month, but my report says' you carry high balances" Well, yeah?, but only until I get the bill. It doesn't make much sense!

[vsjhoc]

Originally Posted by Jacklad

<laugh> I was told that I should carry balances instead of paying everything off every month. Apparently 20-30% utilization is optimal for the score (0% isn't).

The whole mystery of FICO (and even the fact that it is so mysterious) doesn't make much sense. Black magic, I tell you!

Jackie

Actually, it doesn't matter whether you pay in full or carry a balance to the next month. What matters is what your balance is on the day that the credit card company reports it to the credit bureau. Say your your bill is $100 and it is due on the 31st. You pay it off in full on the 30th. But if your credit card reports on the 29th, it will say you have a balance of $100. I think you can find out from the credit card companies what day they report on, if you want to get totally anal about these things.

I have also heard that about 25% utilization is primo. FICO and the credit bureaus have always tried to keep this stuff hidden so that people like us don't learn how to outsmart the system!

[Jacklad]

Originally Posted by vsjhoc

Actually, it doesn't matter whether you pay in full or carry a balance to the next month. What matters is what your balance is on the day that the credit card company reports it to the credit bureau. Say your your bill is $100 and it is due on the 31st. You pay it off in full on the 30th. But if your credit card reports on the 29th, it will say you have a balance of $100. I think you can find out from the credit card companies what day they report on, if you want to get totally anal about these things.

Well, that's the problem - I never wait for the bill, I usually just transfer the amount from chequing as soon as I get home. Of course, that means that my payments post before the charges on a regular basis, which supposedly drives my creditors nuts(not that it has stopped them from upping my limits every six months or so).

Originally Posted by vsjhoc

I have also heard that about 25% utilization is primo. FICO and the credit bureaus have always tried to keep this stuff hidden so that people like us don't learn how to outsmart the system!

Within the last month I have been offered over $100k of *new* credit. On top of the $150k I have already. That's scary!

Jackie

[Ima saver]

As long as my score is pretty good, I am not going to try to figure them out!

[thekid]

Originally Posted by Ima saver

I was told by the agency that my score would be higher if I had a mortgage loan. I have had my house paid free and clear for years, but that doen't count!! Oh well, I have an 817 out of 850, so that is ok.

Some similar situations really show the ridiculousness potential of these scores for people who have little or no debt. To highlight, a person I know who has never had a credit card (but paid cash for his house and pretty much everything he owns) and has a very substantial amount (this person is "financially independent" in the full sense of the word) invested in a bank was turned down for a simple credit card at that very same bank. A call to the bank manager cleared the situation, but the processing people at the CC company initially wanted to hear nothing of it. Some people can be incredibly shortsighted, and so can some systems.

I'll leave the speculation on FICO's habits to others and deal in my reality...


one card, $7000 limit, paid off every month usually well before the bill is even due. only used for bill paying and the very rare purchase so at most the utilization is 1.3% on average at any given time and once in awhile as high as 7% if they catch it on the right day like last month when I had some work done on my truck.

I have just reached the 18th month of this behavior and my score recently passed 820 (when I was "like everyone else" with the multiple cards, etc. it was hanging around the 770 area with frequent oscillations up and down).

that's just how it's worked out for me.

and as far as getting "all the new offers for cards," I fixed that a long time ago...



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and that's just fine with me.

Last edited by Sweepsplayer : Today at 11:50 AM. Reason: Referral removed from link



what does this mean? should I strike the message from the thread?

[sweeps]

No, I noticed there was a referral string embedded in the link so I edited it out.

ahh, sorry, didn't realize that

it appears to still link to the same thing I have bookmarked?!

it's painfully obvious I don't know what I'm doing when it comes to link posting!

[sweeps]

No worries. Sometimes the web site adds the referral string automatically. You didn't do anything wrong.