Maintain Total Credit
- If you can avoid it, you should never close out credit cards. The more cards you have open, the higher the amount of available credit you will have. Credit calculating algorithms take the TOTAL amount of available credit versus the TOTAL amount of debt into account. So, by closing a credit card account you will actually decrease overall the available credit without decreasing your amount of debt. Doing so will raise your debt ratio due to the lowering of your available credit.
- You should distribute your debt evenly across your credit cards. You will be better off having four cards with a 20% debt ratio, then from having 1 card with a 80% debt ratio along with 3 credit cards that have no debt ratio.
Always Be Aware Of Your Credit Limits
- It’s best to keep your credit card balance as low as possible. You should make it a goal to keep your balances below 50% of the credit limit that is on that card.
- FICO ranks debt based on levels. If your debt happens to be more than 75% of your credit limit, serious damage will be done to your score. The next limit is at 50% and then 25%.
- If you find that your debt is getting close to the 75% mark, call your credit card provider and request that they increase your credit limit. By establishing a higher credit limit, this increases your debt ratio with the same amount of debt charged.
Check Your Credit Reports Regularly
This ensures credit card companies have accurately reported your credit limit. If they haven’t reported your limits accurately, the FICO software will read all of your cards as maxed out.
- You should report any discrepancies on your credit report immediately. Errors need to be fixed as soon as possible.
- Keep the lines of communication with your credit card company open. Contact them if you discover suspicious charges on your account or if you need to make any adjustments to your payment schedule. Knowledge is power, and by staying informed you can keep your debt ratio manageable and use it to positively impact all of your scores.
By maintaining your debt ratio, you can ensure that your credit score is as high as it can possibly be. While having a solid debt ratio is not the only factor involved in calculating your FICO score, it is a significant piece.
