Can asking for an increase in my limit hurt my credit score?

What goes into evaluating your credit score can be confusing. Everything from the length of your credit history, to your debt-to-credit ratio, to how many times your credit report has been pulled by credit issuers can be taken into account in the determination of your score. If you want advice on how to better handle credit, members of the Financial Planning Association of Greater Indiana may be able to help you. You can visit their Web site at www.fpagrindiana.org.
Penny C. Lutocka, London Witte & Co.

Your credit score is a tool used by lenders to evaluate your credit report and estimate your credit risk.
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A high credit score allows you to borrow money at the best rate.

Asking for an increase in your credit limit will not hurt your credit score for the short term.

It actually will lower your credit-utilization ratio -- your total used credit in relation to your total available credit. The lower the ratio, the more positive an impact on your credit score.

However, if you qualify for the increase and then borrow on it, this could potentially hurt your score.

Other factors that affect your credit score are:

» Payment history.

» Amounts owed.

» Length of credit history.

» Types of credit in use.

Here are some other ways to improve your credit score:

» Pay your bills on time.

» If you have missed payments, get current and stay current.

» Maintain low balances on credit cards.

» Pay off debt, rather than just moving it between cards.

» Improving your credit score has many benefits. It can:

» Lower your interest rates.

» Speed up your credit approvals.

» Provide better credit-card, auto loan and mortgage offers.

The primary reason for increasing your credit limit should not be to increase your credit score. The general rule is to apply for credit only when you need it.

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How To Achieve Perfect Credit

The Path to Perfection

Perfect credit requires timely payments, but that is just the beginning. If your goal is to have the highest possible credit score you must understand the mechanism of the FICO scoring model and structure the content of your report accordingly. Here are some well tested credit repair tips that will take you to your goal. Many of the adjustments you must make will seem like common sense, while others will be less clear, but you cannot reach the summit of credit perfection without playing by the rules.

Be Good

Don’t’ make late payments. This cannot be over emphasized. A single late payment can devastate your credit score, and although the impact of a single isolated derogatory issue will fade substantially in a matter of months, it can put a serious dent in any financing activity you have in mind for the immediate present. Make sure this does not happen. Avoid silly mistakes; if you have a payment dispute make your payments on time until resolution, if you return a purchase don’t count on the credit to cover your payment on time. When it comes to credit repair, every detail matters.

Build New Credit

If hard times have left you without credit, you must open accounts now. Your credit score will languish forever if you are not feeding the credit bureaus positive data every month. If you can’t get approved for regular credit cards, get secured cards. The limit is of no consequence. Just get started today. Secured cards are the perfect credit repair tool and can make a major difference in your scores. As your score improves you will be able to phase out the secured cards as you are offered superior unsecured cards.

Eliminate Store Cards

The FICO scoring model does not treat all debt the same. Store cards and consumer debt, like furniture loans, are not a good way to rebuild credit. There are several reasons for this, but the crux of the issue is the built-in FICO bias against this type of debt. There is some logic behind this treatment, as this type of debt is often inferior and in many cases has a built in budget “time bomb” in the form of tempting time-limited no payment offers. This is not entirely fair, as many of these offers make great financial sense, so make your best choice, but be aware.

Optimize Revolving Debt

Keep your revolving balances as low as possible. The optimal revolving balance for credit repair purposes is under 20 percent of the available limit. The FICO scoring model puts major importance on this factor; you can lose over 100 points for a maxed out credit card depending on the overall content of your credit report. The more depth and breadth your credit has the smaller will be the impact, but don’t ignore your balances. If you are planning any significant loan application in the near future make sure to reduce your balances at least 60 days in advance as the credit bureau balance updates are lagging.

Structure the Report Content

I am often asked what a perfect 850 credit score looks like. I’ve never seen a perfect 850, and wonder if such technical perfection is possible, but I have seen successful credit repair clients achieve scores over 820 and they all have similar characteristics. The perfect credit score seems to include the following: one mortgage over three years old, one or two auto loans over two years old, and between three and five credit cards over two years old with very low balances. You will notice that there is a time factor involved in all of these accounts mentioned, but there is also a neat equilibrium of clean installment and revolving debt.

Pay a Consultant

Your credit is important. Most lenders rate and price loan applications based on scores. The difference between decent credit and great credit can translate into thousands of dollars in interest payments each year. You cannot afford to ignore any opportunity to optimize your scores. Professional credit repair services are very affordable and will insure that no opportunity is missed. If you don’t feel up to the task yourself, make an investment in your life and hire a credit repair professional.

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Credit Score: Raising Your FICO Credit Score

Let’s face it, whether you like it or not credit is a fact of life. You can keep the amount of credit cards you have to a minimum and pay cash for everything but unless you have the cash to make all purchases outright - including buying a home - sooner or later you’re going to have to use credit.
Even if you have the cash to buy a home, did you know your credit score can affect the amount you pay for auto insurance, home insurance and all other types of insurance?  Many insurance companies determine risk by using your FICO credit score, this is called a ”credit-based insurance score”. Having a good credit score will lower your insurance costs.
Now that you’re resigned to the fact that credit is going to be a part of your life, why don’t you do what you can to get a higher credit score? Getting a higher credit score will get you better credit card rates, mortgage rates, auto loan rates and insurance rates.
Have you ever wondered how credit scores were determined? There are bascially five factors that affect FICO credit scores and managing these factors appropriately can raise your credit score.

1. Make your payments on time. Your credit payment history counts for 35 percent of your FICO credit score. Negative payment histories will hurt your credit score.  Having a good track record on your payment history will help your credit score.
2. The amount of money you owe compared to your overall credit available also has an impact on credit scoring. The more you owe, the lower your credit score will be. This accounts for 30 percent of your credit score.
3. The length of your credit history accounts for 15 percent of your credit score. The longer your credit history, the more this contributes to your score. Several years ago I closed a department store credit card I hadn’t used in a long time and my credit score dropped about 20 points. That being said, keep your long term account open even if you’re not using the accounts and as long as you’re not paying annual fees.
4. Applying for new credit can affect your credit score. This accounts for 10 percent of credit scores. If you apply for or open many new accounts in a short period of time, this will also affect your score.
5. Other factors contribute about 10 percent of your FICO credit score.  The mix of loans you have will affect your score like credit cards, mortgages and auto loans.

Taking a proactive approach to manage your credit will improve your credit score. You are also entitled to a free credit report annually, although if you want to get your credit score that will cost you.

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