Credit cards! They are the most powerful credit repair tool available. You will not believe how much you can influence your credit scores with your credit cards. Master this information and you will reap great benefits. But watch out, the devil is in the details; there is more involved than just paying down your cards. You need to understand four important points; miss even one and your credit repair effort will suffer.
Balance to Limit Ratio
The FICO scoring model recognizes very specific card utilization ratios. They are 20, 40, 60, 80, and 100 percent card usage. You will gain or lose points based on the balance that is reported to the credit bureaus each month. Think of a balance between 40 and 60 percent as neutral. Go over 60 and you start to lose points. Go over 80 and you are in trouble. Go over 100 percent and your scores will plummet. But here is the real credit repair magic; get your balances under 40 percent of the card limit and you start to get bonus points. Go under 20 percent and hit the jackpot. How many points are we talking about? An over the limit card can cost you as much as 150 points. Stay under 20 percent and gain as much as 150 points. The actual results depend on the overall content of your credit report, but you get the picture. Don’t miss this credit repair opportunity.
Have you been keeping your credit card balances near the limit? Are you feeling glum about the credit repair damage you might have done? Don’t worry. No harm done. The great thing about revolving debt is that as soon as you reduce your balances your credit scores pop right back up as if nothing happened. There is no long term credit repair damage. Just start chipping away at those balances today and watch the magic happen.
Never go to Zero
Many people figure that if a low balance is good a zero balance must be better. Ah, life is not so simple. While you are in credit repair mode you should keep a small balance on your card. Why is this? The brilliant statisticians at Fair Isaac Corp. realized that zero balance cards reported by creditors may no longer be in the hands of consumers. As a result, unless you have activity on a card the score benefit of that account is diminished. So let the folks at FICO know that you are alive and managing your revolving debt like a pro by keeping a little balance on those cards.
Credit Repair Timing is Everything
Many people run their cards up to the limit on a monthly basis and then pay the balance down when they get the bill, and then they are surprised when the card is reported with a high balance. They incorrectly suppose that the balance that will report will be the balance after they make their payment. Unfortunately for their credit repair efforts, creditors have reporting cycles which have no bearing on the date of your payment. If you are going to need your credit to be great you better get your balance down and keep it there at least 60 days in advance to make sure to hit the reporting cycle and to allow ample time for the credit bureaus to receive and update the information.
Not all Cards are Equal
The only cards that will help you reach your credit repair goals are the four mainstream cards: MasterCard, Visa, American Express, and Discover. Store cards and consumer credit, such as furniture and electronic store loans are useless and potentially hazardous to your credit scores. The folks at FICO have determined that these forms of credit are inferior and represent a bad omen for your future financial health. Store cards and consumer debt should be paid down to zero. As an aside, if opening a store card will result in a great discount, or provide a valuable convenience, go ahead and do it! You should always make the best financial decisions. Just understand the impact on your scores and make sure to reduce the balance as soon as possible. As always, we wish you the best credit repair success!