Paying Off Account Balances

Less could be more in the credit scoring system. To have less, means having fewer accounts with a reporting loan balance, not lessening the number of accounts you have overall, unless necessary.

When you have an excessive number of loans with balances, whether they have a $10,000 or $10 balance, they all can count towards your credit score. Look to consolidate accounts when you can, and pay off those accounts with small balances.

However, it is crucial not to start closing accounts once you have paid them off. Keep them open and use them occasionally so they won't go dormant.

Recognizing Critical Credit Ratios

The credit scoring system measures your reported credit limits, on lines of credit such as credit cards and merchant accounts, to the balances that you currently have. Except Capital One – or CapOne, or Capone as they are known in the industry.

Capital One reports your high balance as your credit limit!!! That means if you have a credit balance of $500 on a $10,000 limit card, but they are reporting that you only have a credit balance of $500 – it appears as though you are maxed out on your card. Be very cautious of this!

The system also looks at how much you have paid down on your loan balances in relationship to the initial loan amount. Lowering the ratios is critical to raising your credit scores. If possible, pay extra to lower your balances on credit cards and your installment loans each month.

Paying Obligations On Time - A No Brainer!!!

This is the most important factor of the Five Factors to Credit Scoring – Making your payments on time.

Most consumers think that just making timely payments is the sole reason a credit score increases, which is not the case. The credit scoring system is much more complicated than just making payments on time.

However, making timely payments on all your loans and credit cards is the master key to raising your credit score. Without it, the other strategies are less meaningful.

If you have a perfect record, great job! Keep on track.

If you have had issues in the past, address them now, and make every effort to make payments on time going forward.

Establishing Cash Reserves To Preserve Your Credit

Before you take out any loan - especially a mortgage, you should have a cash reserve already established. Most lenders require a 2 to 6 month reserve.

No one knows when there may be an accident, a loss of a job - especially in today's economy, health issues, or another unfortunate event. You need to establish a cushion so that you can offset any decline in income should it happen.

If you are taking out a new loan to cover your expenses until the next pay check, like a pay day loan, you are in serious trouble. Before you incur any debt, set aside a sufficient cushion that can be readily accessed in case trouble arises.

If you start missing payments on your mortgage, car loan, or credit cards, you can watch your credit score tank faster than the Titanic.

Creating Depth With Your Credit Score

Everything goes back to the Five Factors of Credit Scoring.

Depth, or length, is created by how long our accounts have been open. Depth with your accounts determines how high your credit scores can go. Review your credit file and identify how long your accounts have been open. Higher scores will be realized when most of your accounts have been open for at least four years.

THE OLDER THE BETTER!

Opeing New Accounts

Once you have an established credit profile, try to avoid opening new accounts at every opportunity. Opening multiple accounts within a 12-month period can be extremely detrimental to credit scores for two reasons.

The first is applying for new credit will show inquiries on your credit report. Secondly, a new loan will add risk and could lower your credit scores.

You should pay particular attention to the number of loans you have opened in the last year. Try to space new accounts out to avoid sudden declines in your credit scores.

Two factors of new accounts are determined by the Five Factors of Credit Scoring.

Establishing Quality Loans on Your Credit Report

Some loans are considered more valuable than others, such as a mortgage. This type of loan usually shows that a person is more responsible. The credit scoring system requires a minimum amount of activity on these accounts for revolving – such as a credit card – and installment loans – like a mortgage or an auto loan.

The activity on a mortgage or auto loan is not as critical as a revolving account because you make those payments regardless every month versus a credit card that can be put into a drawer and not used for months and months. In order to keep your credit card accounts active you should use them at least every 6 months so they won’t go unrated or become an inactive account.

You should have some payment activity from both types of loans – it is critical to raising credit scores.

This tip goes back to the Five Factors of Credit Scoring.