Raising Your Credit Score: The Rule of 30
I’ve been asked by a lot of my friends on how they can improve their credit scores. First off…..
STOP USING YOUR CREDIT CARDS AND STOP APPLYING FOR MORE CREDIT!
Ahem…
Anyhow, back on topic. So basically do the step above for starters. Why? Because you won’t stop accumulating debt and it’ll just keep piling up right before your eyes.
If you’re still reading at this point, it looks like I’ve got your attention. So, what is the “Rule of 30″ you ask?
The Rule of 30 means keeping your debt below the 30% threshold. If your debt is above 30% on your credit cards, the “Big Three” credit reporting companies, TransUnion, Experian, and Equifax will bring your credit score down a couple of points. Always keep an eye out on how much credit you have and where you’re at with your spending.
For example:
Credit Limit: $5000
30% of $5000 = $1500
Constantly staying at or above $1500 on a monthly basis is not where you want to be.
“But wait, cee.mo what about if you’re paying them in full?”
That’s fine and by all means keep paying your cards in full! It’s financially right to do so, but the “Big Three and the Credit Score” likes to look at the balance on your previous statement. That’s just how it works and that’s how it is when you read your Credit Report. Hence, the Rule of 30.
What’s cool about the Rule of 30, is that you can spread the wealth among the other credit cards you have. Please don’t be stupid and go apply for 5 new credit cards after reading my previous statement. The purpose of the Rule of 30 is to keep your credit score healthy, so let’s not hurt that by pinging for more cards. As a matter of fact, you should be getting rid of your credit cards.
What I meant by “spreading the wealth” between your other credit cards is that when you have applied the 30% rule on one card, it doesn’t affect the other cards you have. This means you can have 30% on your Visa, 30% on your American Express, and 30% on your MasterCard. What I like to do is use the Rule of 30 as my max credit limit and if I’m going over the 30% mark I obviously stop using it.
“What if I have only one credit card?”
Then much props to you, because you didn’t fall into the trap everyone has fallen into. The only problem is if you’re hovering around the 30% mark, you’re going to look bad to the “Big Three”. If you’re in good standing with your credit card company, you can always call them for a credit increase.
So stick with the Rule of 30 and you’ll keep your credit score in good shape.
Yup, you definitely do not want to use more than 30% of your available credit on a personal credit card. Even if the card is being paid off every month, creditors view it as if you’re borrowing too much. So, if you’re paying it off every month, ask for a higher credit limit and keep yourself disciplined to stay below 30%.