Revolving debt, more frequently referred to as credit card debt, is about the only area that you can change to immediately improve your credit score.  Most of the other areas take time.  Building a perfect mortgage history, paying down a large car loan, continuous payments on student loans, and putting years between you and a major default such as a bankruptcy or collection will certainly raise your score.  But, what if you don’t have the time or money to do these things?  Most people don’t realize that having a credit card balance near the maximum allowed credit is killing them.  In fact, many consumers will “max out” one card in order to pay down another.  This is not a good idea.  Here are two examples of the same amount of credit card debt that would have very different impacts on an individual’s credit score.

• Card One - $5000 maximum with a $4500 balance.  Card Two - $3000 maximum with a $2000 balance.  Card Three - $4000 maximum and a $0 balance.
• Card One - $5000 maximum with a $3000 balance. Card Two - $3000 maximum with a $1500 balance.  Card Three - $4000 maximum with a $2000 balance.

Scenario One has two cards nearly maxed out.  The first is at 90% capacity and the other is at 67%.  The third is at 0%.  This type of “balance” will kill your credit.  The bureaus view the high percentages as a caution that you are not able to control your spending and are likely to get in over your head.  These accounts will hurt you much more than the third account with the 0% balance will help you.

Scenario Two has the exact same amount of debt, but it is spread out to 60% of the maximum, 50% of the maximum, and 50% of the maximum.  Even with the 60% (which is really considered too high), the other cards at 50% are in great shape.  This person’s score would certainly be the higher of the two.   On-time payments with your long-term debts (such as your home mortgage and cars) will continue to raise your score.  For immediate help, however, you should consider paying your credit cards down to 50% or below their maximums! 

With lower ratios on your credit cards you will increase your credit score.  Higher score means lower interest rates and that equates to lower monthly payments.  

For questions regarding your credit score or any other mortgage matters, please call Rotella Mortgage – 402-339-4426.