Maximizing Your Credit Score

In the past few days, I’ve had four new entries for my contest to win a free copy of 7 Steps to 720. The only problem: I gave the book away a year ago!

I’ve been thinking about what to do about this. I feel bad that I wasn’t clear enough in the post. It is dated 2007 at the top, but the post itself failed to include the year.

So, in the spirit of Christmas, I’m going to give away ANOTHER free book. This time I’m giving away a copy of From Credit Repair to Credit Millionaire by Donna L. Fox. This book currently sells new on Amazon for $37.00.

And I’ll personally foot the bill — postage included!

How to Enter:

Simply leave a comment below telling me why you’d like this book.

Last time I did a book giveaway, I selected the winner based on the quality of the comment. But this time I will use a random number generator to select the winner.

IMPORTANT: Deadline to enter is Wednesday, Dec. 10, 2008 at 12 midnight.

Now, whether you win the book or not, I’d like to help you out. So here are a few suggestions for raising your credit score as quickly as possible.

1. Increase your available credit on all lines of credit.

If you are interested in only paying off debt as fast as you can, then you need to focus all your energies on one balance. If, on the other hand, you want to maximize your credit score, you need to take a different approach.

Every card you have has what’s called a “utilization rate.” If you have a $10,000 limit, and your balance is $8,500, then you have an 85% utilization rate on that particular line of credit.

In general, you want your utilization rate to be no more than 30-60% on all open lines of credit to maximize your credit score. There are three approaches to achieving this.

a. Focus on paying more than the minimum payment to reduce balances across the board.

b. If you have one card with a high utilization rate (say 90%) and another one with a low utilization rate (say 15%), you may want to do a balance transfer to bring the “problem account” down into the 30-60% range.

Even though your overall debt load won’t change by doing this, it may still give your credit score a lift.

c. Another approach is to simply call up each creditor and ask for a limit increase. Should you be approved for a credit limit increase, this will automatically reduce your utilization rate on any account with a balance.

2. Keep zero-balance lines of credit OPEN.

When getting out of debt, the temptation is to close accounts after they’ve been payed off. And while this may be good for curbing spending, it is not good for maximizing your credit score.

One of the worst things you can possibly do is to close lines of credit immediately before getting approved for a home loan. It could take six months or longer for your credit score to “heal” after closing an account.

Why is this?

Because reducing the overall credit you have available to you increases your overall utilization rate.

Example: If you have $50,000 in credit and you have total balances of $25,000, you have a 50% utilization rate. If you then close an account where you had $15,000 of available credit, you now only have $35,000 in credit. What’s more, your utilization rate has just increased to 71%. This will cause your credit score to drop.

3. Keep open lines of credit ACTIVE.

If you have credit cards with zero balances, use them for small purchases every other month or so. Of course, pay off the balances whenever you use them.

This keeps your accounts active. After all, you are scored for the wise use of credit. If you’re not using your credit, that can hurt your credit score.

I hope these tips help you… and good luck!