May 2009

You can raise your credit scores by understanding credit

Many people wonder why we’re in such a financial crisis these days. The answer may very well be attributed to the lack of education we received in school on the topic of personal debt responsibilities. Everybody should know how to work with the credit system and unfortunately, many are unequipped to do so. It is estimated that over 50% of US citizens have never even looked at their credit report and close to 90% of people have no clue how to read a credit report.

I think it is everyone’s dream to have perfect credit, and be able to apply for anything without worrying about being turned down. But do you really know what perfect credit looks like? In this article, I will outline the perfect credit profile, and share with you how you can get on the road to achieving perfect credit for yourself.

much of what you read here will not make sense to you since you have probably been told things in the past that are simply not true. There is much confusion out there when it comes to credit, so open your mind, and get ready to learn.

One easy way to help your credit scores is to have a variety of accounts. Revolving accounts (credit cards), installment loans and mortgages look great when appearing together on a credit report.

One to two mortgages appearing on a credit report is the ideal way to go. Having at least one mortgage loan will impact your scores tremendously and if you don’t have any mortgages at all, that can be something to strive to achieve.

Installment loans, such as car loans, can boost your credit rating if you have between one and three loans. Too many installment loans can cause a negative effect, so minimize them if you can. Other kinds of installment loans, like store furniture loans, don’t have the same impact on your scores as the larger installment loans will. The smaller installment loans can be a great option for those with little-to-no credit but they don’t hold the same cache’ as an installment loan with a larger value, such as a car loan or student loan.

Revolving Accounts – Credit Cards / Store Cards (Ideal 3-5 accounts): This category of account has a great deal of variance among the type of credit cards and store credit obtained. Major credit cards are more valuable to your credit than department store cards. You should shoot to have no more than about 3-5 of these type of accounts. The lower-end credit accounts such as mail-order catalogs are not looked at favorably by lenders. As with any low-end credit accounts, the more high-end accounts you have the less they hurt you.

With all the above, the more seasoned the accounts are the more weight they carry to affect your credit score. And when it comes to credit cards and store credit, you want to be sure that you keep your revolving balances below 50% of the available limit to maximize your credit. Be sure to keep in mind that once you cancel a good account, it will only remain on your credit for two years. If you cancel a seasoned account and it falls off your credit, your scores will most likely drop.

By J. Ochs

About the Author:
Jon Ochs is the President/CEO of Nationwide Debt Solutions, and a well respected authority on negotiating debt.