Get Out of Debt 101 Blog

Welcome back! Yesterday’s post was a little long, but I wanted to offer some background information to better understand the whole process. Today it will be shorter.

Step #2 to improve your credit score It is VERY important to keep your credit card balances UNDER 30% of your credit limit, i.e., your balance should not exceed $3000 on a $10,000 credit card.

Keep in mind that “Amounts Owed” makes up 30% of your credit score, which is huge. So this is critical to improving your score. Now, you will have to get creative in order to free up your credit cards. Check out the offers you receive in the mail since many credit cards offer free balance transfers with very low interest rate, usually for 6 months or so. Make sure you read the fine print, just in case.

The reasoning behind this is that credit card companies (or credit companies, in general) will consider your account “risky” if you owe too much money relative to your credit limit. If they see that you do have credit but you are not using it all, then they perceive you as responsible. The riskier they consider you, the higher the interest rate they will charge you.

Another thing you can do if you can’t transfer money from one credit card to another one (ideally you want to pay it down quickly, see the Get Out of Debt 101 Master Manual for more information on how to do this very effectively), you can also call the credit card companies and ask them to increase your credit limit. My disclaimer is that you MUST be very careful here and stop using your credit card so you don’t get yourself deeper into a hole. Your goal should be to get out of debt as soon as possible. By increasing your credit limit, the percentage of money you owe relative to your credit limit goes down automatically. This is one of the quickest ways to boost your credit score, other than paying down your cards.

Make sure you come back tomorrow for more information on how to improve your score. See you tomorrow!