How Debt Effects your Credit
In an economy where your credit score is the basis for everything that you do, it is imperative that you take control of your debt so you can have control of your life. One third of your credit score is based on the amount of credit that you have versus the amount of debt you have.
If you have three credit cards that are all charged to the midway limit you will have a better score then if you have one card charged to the maximum and two cards empty. The trick of balancing out your credit score to your advantage is to balance out your debt to limit ratio.
In the event that you have one card charged to its limit and an empty card you should consider a credit card balance transfer. Transfering half your debt from one card to another will actually improve your score if the transfer does not exceed the half way mark on the new card. For instance: if you have two cards with a two thousand dollar limit one is maxed and one is empty. You would be best served transferring half the balance to the empty card.
This may seem like extra work, since you will now have two payments to make monthly, but in the eyes of the credit bureaus your percentage just went up. Having two active cards that are only midway to the maximum allowable credit limit makes you “more responsible” in the credit agency.
Spreading out your debt, even if it is actually all the same debt, makes the credit bureaus believe that you are responsible with your charge limits. The bureaus frown upon any credit card that is charged to the limit as well as any card with an empty balance. Being right in the middle is where you receive the highest points toward your credit score.
Your credit score will affect everything that you do in the financial world. It can determine whether you receive credit, pay high interest rates or are flat out denied credit. It can determine if you qualify for a job or have the ability to purchase a home. With all of this in mind, it is crucial to know how to manipulate the credit score in your favor at all times.