Hey Wealth Builder! Welcome back, and I’m sure you’ve set up those minimum payments. Now we can discuss the 2nd most important aspect of improving your credit. That’s your amounts owed or utilization!
For the remainder of this lesson, I will just use the word utilization.
There are several ways to improve utilization and gain all 30% or 165 points in the credit score algorithm.
I’m talking about the difference between your total available limit and current balances on all of your debt, but primarily revolving debt.
Revolving debt are things like credit cards and home equity lines of credit.
For example, if you have 3 credit cards.
Then you have a total limit of $7500 ($5000+$500+$2000) and a total balance of $2300 ($2000+300+0).
Your total utilization percentage is your total balance divided by your total limits * 100
So that’s ($2300 / $7500) * 100 which equals 30.66%.
You have a 30.66 utilization percentage, and we need to get that to 10% or lower.
Having 1% utilization on my revolving credit is a major factor in why my credit score is one of the highest in the country. It’s a common myth that you should be at 30% utilization on your credit cards.. Well not if you want to drastically improve your credit score.
Going back to our example..
I recommend option #3 from the list above!
Think of this as if you’re training for a marathon. The goal is 26.2 miles and being victorious, but we just need to get a few miles out of the way in preparation for the big event.
By doing options 1 and 2 above you will have added at least $10,200 more in credit card limits to your profile and at least two more data furnishers saying you’re paying on time and worthy of a credit score increase.
Going back to our example from above (when we had $7,500 in total limits)
Now you have $17,700 in total limits ($7,500 + $10,200) and $2300 in balances which gives you 12.99% utilization!
You just went from 30.66% utilization to 12.99% utilization, and you did that in less than 10 minutes by following directions above .
You now just need to have a game plan to pay down your balances to no more than $1,770 and boom we hit 10% ($17,770 total limit x10% = total utilization of 10%).
Ok, so I purposely used a lot of math in this lesson to prove my point.
Why did I do that? I wanted to show you that the numbers never lie.
Improving your credit score isn’t rocket science, it’s simple math and execution
You now just have to answer the question
How do I get my credit card utilization to under 10%.
If you have zero credit cards then just follow the steps above and boom! Instant credit score boost!
Today’s exercise is simple… Pull out all your credit card statements.
Write down the card name, limit and balance then calculate your total utilization. After you get the two cards above, recalculate your utilization percentage to figure out how much you need to pay off to get it to 10% but keep in mind your goal is 1% utilization
Post in the facebook group the number of credit cards that you have and your credit card utilization percentage and don’t forget to share with your accountability partner