2022 Boise Idaho Real Estate Blog

Five Factors Of Credit Scoring -- How Much You Owe (cont.)

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In my last entry, we talked about the debt ratio portion of your credit score that accounts for 30% of your score. In this entry, I'll talk about some ways to improve this portion of your score easily and permanently.

30% of your credit score is determined by your debt ratio, or...how much you owe on revolving accounts as compared to the maximum credit limits. This is roughly 1/3 of your credit score, but fortunately, this portion of your score is one of the easiest ones to positively and permanently affect. Let's discuss some of the ways you can help your score inside this scoring category...


I know. This flies in the face of Dave Ramsey and the philosophy of using cash/debit cards for purchases. And a lot of people who have been in trouble with credit cards in the past now want to avoid credit cards like the plague. However, by choosing not to use credit cards regularly, you also choose to not have the best credit score possible. The credit scoring models say you cannot maximize your credit scores without using revolving credit accounts. There is no way of getting around this.

I always recommend that my clients utilize no less than three and no more than five major credit cards (VISA, MC, Discover, AMEX) regularly. I'm not saying that you use them for all of your regular purchases...far from it actually. The system I encourage my clients to use is to just use the cards to purchase gasoline. Gas in your car is one of the only things you buy regularly that you cannot overspend on...after all, the gas tank is only so big. Don't use the same credit card every time. Rotate the cards so that you use them all to purchase gas when you need it.


One of the biggest industry secrets to improving credit scores lies within how you manage the balances of your credit cards. Here's the breakdown:

If you want to improve your credit scores, then keep the balances on ALL credit cards under 30% of your available limits on the statement cycle date. If you just want to maintain your credit scores, then keep the balances on all cards between 30-49% of your credit limits on the statement cycle date. Once your balance goes over 50% of the available credit limit, then your score goes down. The rationale here is that consumers who carry a balance of over 50% on revolving credit accounts appear to be living off of their credit cards and are more likely to default on payments.


Do not consolidate existing credit card debt onto one low-interest credit card unless the balance on the new credit card is under 30% or 50% of the available credit limit AFTER the balance transfer.

On my next post, we'll continue this discussion. There are many other ways to positively affect your credit scores within this scoring portion.

Posted by Eric Leigh at 5/22/2009 4:44:00 PM

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