The Hard Truth:
There’s a lot of emphasis put on deleting negative items from your credit reports to increase your credit score. As there should be. Deleting negative items is the fastest, and quite possibly, easiest way to help you fix your credit and get the score you need to qualify for a loan. Especially if you’re using a credit repair service that knows exactly what they’re doing. And let’s face it. At 35% of your credit score, fixing your negative items is not something you should ignore.
But let’s talk about the next most important part of your FICO credit score: your debt-to-credit ratio (which is 30% of your score). It’s simply how much debt you have compared to how much credit you have available to you. You know, like having a $1,000 line of credit and you’ve used $900 of that. That would put you at a 90% debt-to-credit ratio. Which is bad.
You see, credit lenders and credit bureaus, and even FICO (pretty much anyone who gives you a credit score) don’t like to see maxed-out credit. They don’t even like to see your debt-to-income ratio above 50%. That’s simply because when people max out their credit, it usually means they’re hurting for cash flow. And that usually means they’re at a higher chance of defaulting on a loan or credit card payment. It’s not always the case, but we live in a world of numbers and creditors don’t see you for the hard-working, real person you are. They see your maxed-out credit line. And so your score plunges.
So, to see a dramatic increase in your score, you need to fix your debt-to-credit ration. And there are several ways to go about this.
1) Pay down your debts. We have a handy snowballing spreadsheet on our Reducing Your Debts page from our credit score guide.
2) Increase your line of credit. It might feel like a cheat, but it works, because the math works. Of course, if you are not ready to commit to stop spending, this might not be the best option for you.
3) Get a new line of credit. The same way that increasing your line of credit works, so does adding another line of credit.
All of these options can be explained more on our Reducing Your Debts page. But no matter how you go about it, sitting around waiting for debts to pay themselves off will do you no good. It’s the boring part of credit repair; it really is. But who said this was going to be a day at the park?
Innovation brings us technologies like search engines. With billions of searches behind Google’s search results, you can pretty much bet you’re getting the best results on the front page of your search result. If you compared someone repairing their credit on their own, with someone who has done it millions of times, it would be like comparing Google’s search results with asking a random person off the street. You have no idea if you’re getting good results until the investment is made. You’re stabbing in the dark.
