Your Credit Score is key to receiving the BEST credit offers with the BEST interest rates.
Why should you care about Credit Scores and Interest Rates?
Because your Credit Score will determine the interest rate that will be charged when using credit, and LOW interest rates will SAVE YOU MONEY, and usually in the hundreds, if not THOUSANDS OF DOLLARS, throughout the term of the credit product, whether it be for the cost of monthly rent, utilities, or insurance, or whether it be for a credit card, a car loan, or a mortgage.
When you are working towards improving your credit, your ‘Target’ Credit Score should be ‘740+’ PLUS, as this is where you begin to receive ‘GOOD’ interest rates, and anything above a 740 Credit Score only gets better, that is until you get above a Credit Score of 800+ PLUS, which at this Credit Score number, interest rates become incredibly ideal, and honestly, banks, credit card companies, and lenders will be begging for your business by offering prime interest rates, which are the BEST and the LOWEST interest rates that are reserved ONLY for their BEST Customers, which are defined as those Customers with the HIGHEST Credit Scores.
Something else for you to consider: the HIGHER your Credit Score, the stronger your position, when negotiating on the price of your next vehicle or your next home.
There is quite a bit to learn about Credit Scores and how they work, but first, we are going to present to you a strategy that you can begin to focus on RIGHT NOW so as to help you to increase your Credit Score quickly.
Improve Your Utilization Rate:
Your credit Utilization Rate is critical to your Credit Score.
To further explain, I will be referring to a credit card with a $10,000 dollar credit limit.
(NOTE: The ‘Utilization Rate Formula’ applies to ANY credit card limit)
So, if you have a credit card with a $10,000 dollar credit card limit, you must do all that you can to reduce your credit card balance to 30% or BELOW (preferably BELOW 10% percent).
This means that on a credit card with a $10,000 dollar credit limit, your credit card balance should be at $3000 dollars (30%) OR LESS, and never go above this balance (known as the ‘Utilization Rate’) to maintain a Good Credit Score.
The Utilization Rate Formula for all of your credit cards is:
$3000 (Credit Card Balance) ÷ (divided by) $10,000 (Credit Card Limit) = 0.3 or 30% percent (Utilization Rate)
So long as your Utilization Rate is AT or BELOW 30% percent, you will maintain a Good Credit Score.
Let’s say that your credit card balance is $7,500 dollars on this same credit card with a $10,000 credit card limit.
Then the Utilization Rate Formula would be:
$7,500 (Credit Card Balance) ÷ (divided by) $10,000 (Credit Card Limit) = .75 or 75% percent (Utilization rate)
The Utilization Rate in this example is 75% percent, which is well over the preferred 30% Utilization Rate and will have a negative affect on your credit and begin to lower your Credit Score.
American Express NO PRESET LIMIT
This ‘Utilization Rate Formula’ applies to all of your credit cards, except for American Express with NO PRESET LIMIT credit card.
When it comes to American Express NO PRESET LIMIT credit cards, rather than using the ‘Credit Card Limit’, American Express goes by the ‘Highest Credit Charged’.
Which means, that if the ‘Highest Credit Charged’ on the American Express NO PRESET LIMIT credit card is, for example, $1000 dollars, you would multiply by 30%, and this would equal the ‘TARGET’ Utilization Rate of $300 dollars.
In this example, if your credit card balance goes above $300 dollars, you have exceeded the 30% percent credit card Utilization Rate.
If you wish to INCREASE your American Express NO PRESET LIMIT credit card ‘Utilization Rate’, you would need to make a higher credit charge.
For example, if you were to purchase a $10,000 dollar item(s), AT ONE TIME, on your American Express NO PRESET LIMIT credit card, then your 30% percent Utilization Rate would go UP to $3000 dollars.
$10,000 dollars x (multiplied by) 30% (Target Utilization Rate) = $3000 dollar credit card balance
WARNING: Of course, if you were to make a $10,000 ‘ONE TIME PURCHASE’ with your American Express NO PRESET LIMIT credit card, you would need to have the $10,000 dollars in CASH readily available for you to be able to pay the credit card bill IN FULL as soon as the credit card statement arrives.
Increase Your Credit Score Even Faster
Now, if you want to increase your Credit Score even faster, you should aim for a Target Utilization Rate of 10% percent OR LESS.
So, a credit card with a $10,000 dollar credit limit x 10% Target Utilization Rate = equals a consistent monthly credit card balance of $1000 dollars or LESS.
KEY POINT: There is a misunderstanding among some Credit Card Holders, and this ‘misunderstanding’, or might I say ‘unawareness’, may be causing unintentional damage to their Credit Scores.
There are many Good People that have, let’s say for example, a credit card with a $3000 dollar credit card limit, and charge, let’s say, $3000 dollars every month on that credit card, BUT, they are able to comfortably afford to PAY THE BALANCE IN FULL as soon as their statement arrives, which is to say that their payment is NEVER LATE, and yet, their Credit Score never goes UP.
Why?
Because of their Utilization Rate.
In this example, the Credit Card Holder is utilizing 100% percent of their available credit ($3000) every month, which makes their ‘Utilization Rate’ equal to 100% percent.
This is commonly known as ‘Maxing Out Your Credit Cards’, and this type of credit behavior does not benefit, nor help, a Credit Card Holder to increase their Credit Score, in fact, this type of credit behavior may even cause their Credit Score to go even LOWER.
Even though the Credit Card Holder pays the credit card balance IN FULL and ON TIME every single month, a 100% percent Utilization Rate is a huge ‘sign of trouble’, or credit distress, to the credit card companies, and this ‘sign of trouble’ begins with consistently being at, or above, a 30% percent Utilization Rate.
It is critical for you to be aware, that Credit Cards are ‘SHORT TERM LOANS’.
The banks that issue credit cards, are granting the Credit Card Holder (this is YOU) free access to the maximum credit card limit, and you are TRUSTED to pay the credit card balance, under the terms of the credit card agreement.
The better that you maintain a good credit history, such as keeping your Utilization Rate under 30% percent (preferably under 10%) and making your payments on time, the faster your Credit Score will go UP, and the more your credit card LIMIT will INCREASE, AND, the LOWER your interest rate will DECREASE.
HOWEVER, it usually requires that you, as the Credit Card Holder, make a ‘courtesy call’ to your bank, or to your credit card company, and kindly request that they lower your interest rate, but, you will not be eligible for any of these benefits, if your Utilization Rate is consistently above 30% percent.
