Going from good to great credit.
February 11th, 2010 Comments Off
“How do I go from good to great credit?”
This is a common question from those with a 700+ credit score and can’t figure out how to improve it.
To go from good to great credit, you need to understand how credit scoring measures your financial stress based upon your credit report.
A big factor is available credit. Let’s examine how that works in credit scoring.
Imagine you have three credit cards, each with a $5k balance ($15k total) and a $10k credit limit ($30k total). You pay card #1 down to zero. Your credit score will go up because your open credit is greater – $10k balance vs $30k limit shows a lower financial stress at 33%. Then what happens when you close card #1? The ratio of open credit drops to $10k vs $20k going back to 50% stress, lowering your score. I recommend cautiously crossing in to 50% stress level and certainly never over 70%. I also recommend you closing your accounts only if your stress level will be below 33% after closing; meaning get your card #2 and #3 balances down significantly before paying off and closing your card #1.
