Original article by Clean Slate Credit Services, Edited by Robert Weinberg
You need to understand that a huge part of your score (30%) is determined by your “Proportion to Balances” ratio.
This is a very important number, do not overlook it. I want you to understand how this is scored so you will always be able to manage your credit and your score. There are methods & strategies to help you remove your negative credit history from your file (Contact our office directly for more information), but you must have good credit with good ratios reporting.
If there is a failing grade in this category, it is like averaging in a F in your overall score, this will keep your overall score very low.
So, you must have high credit limits reporting with low balances. The magic formula is: 3 open, revolving credit lines, with a balance below 30% of the high credit limit.
For the best FICO scoring, you need to carry 10% to 30% of your high credit limit on your revolving credit, this is your magic ratio number.
So if you have a Visa Card with a $1,000 limit, your balance needs to be no more than $300 at all times. If you have ZERO balance, you need to charge on it, keep at least 10% balance. This is debt score, not a financial health score, BIG difference.
If you have a low limit, (under $500) you need to get this increased. Ask your creditor if they will increase your credit limit without an inquiry. Don’t do it if they must have an inquiry. If you have charged way over 30%, and can’t pay it down now, you need to increase your HIGH CREDIT LIMIT.
Example: If you charged $850 on your $1,000 limit credit card, you currently have a ratio of 85% (say goodbye to your good FICO score). IF you could increase your HIGH CREDIT LIMIT, by adding a new line of credit of $2,500, you would now have $3,500 of credit with a balance of $850, you new ratio would be well under 30%.
If you have no credit, you must get some. If you have no credit, nothing good or bad, you will still receive a failing grade on your credit score.