Now we get to the fun part, where I’ll teach you the magic number credit agencies really want you to carry in debt and why. So Optimize Your Debt Ratio and Game the System with This Powerful Trick.
Your FICO credit score is calculated using the following formula:
35 percent payment history
30 percent amount owed
15 percent length of history
10 percent new credit
10 percent types of credit
This means the bulk of your credit score is made up of on-time payments and how much available credit you have. Obviously paying your bills on time will improve your credit history over time. So we’ll focus on the debt to credit ratio.
Many experts will tell you to stick to 30 percent of your available credit. This means if you have $1000 of credit, you should only have balances totaling $300. But the truth is the more available credit you have, the better your score will be. So maintaining low balances on credit cards can raise your score by up to 100 points.
I recommend keeping your available credit at 94 percent. So does Experian. I checked my own credit report one day and that’s the advice they gave me to raise my own credit score. You should only be spending $6 for every $100 of available credit you have. If you want to successfully raise your credit to the best possible score.
What this shows creditors is that if something bad happens in your life (medical emergency, job loss, etc.), you still have access to funds to pay your bills for the next six months. This lowers your credit risk and makes you someone lenders love to work with.
So in practice, your credit limit will be five to six times high than your usages limit to game the system. I have another game-changing trick up my sleeves to boost your credit score.