The Strange
Formula
Which Can
Easily
Boost Your
Credit Score
by 30%
PAGE 2 EASILY BOOST YOUR CREDIT SCORE BY 30%
There are 5 calculations used to determine your credit score, each of
which is weighted depending on how influential they are:
Four of these calculations are directly linked to “good” credit
behaviors: A good payment history, a long credit history, a low-risk
credit mix, and low numbers of file inquiries. But one calculation, credit
utilization, behaves very differently.
In fact, some actions you might easily assume to be “good” credit
behaviors can actually cause significant damage to your credit score. For
example:
• Closing credit cards can hurt your credit score.
• Paying off your credit cards on time can hurt your credit score.
Both of these are counter-intuitive, and both are a result of
misunderstanding your Credit Utilization Score. Without
understanding how this score is calculated, you can unintentionally
trigger your credit score to plummet. Conversely, once you understand
it, you can boost your credit score rapidly with some very easy changes.
© SIMPLEOLOGY®
PAGE 3 EASILY BOOST YOUR CREDIT SCORE BY 30%
DETERMINE YOUR CREDIT UTILIZATION SCORE
Determining your Credit Utilization Score is surprisingly straight
forward. First, list each active credit card you have, along with the
current balance and limit of each:
Then, take your total current balance: $_________________
And, divide it by your total limit: $_________________
Result: __________
Now, multiply the result by 100: _________
This is your Credit Utilization Score.
To increase your credit score, your target should be to
keep your Credit Utilization Score BELOW 30. Credit
bureaus consider people with Credit Utilization Scores
under 30 to be far lower risk.
© SIMPLEOLOGY®
PAGE 4 EASILY BOOST YOUR CREDIT SCORE BY 30%
To demonstrate how misunderstanding this formula can hurt your
credit score, consider this example. Imagine you have 5 credit cards,
each issued from a different bank. The balances and limits are listed
below:
Your Credit Utilization Score is: (7187/23000) x 100 = 31.25
There are two cards (Banks B and D) which are not carrying any
balance. So, you close these two cards, believing it will improve your
credit score. Look what happens:
Your new Credit Utilization Score: (7187/16000) x 100 = 44.92
Your Credit Utilization Score is WORSE, and once the closures have
been passed on to the credit bureaus your credit score will fall.
© SIMPLEOLOGY®
PAGE 5 EASILY BOOST YOUR CREDIT SCORE BY 30%
Now consider what would happen if instead of closing an unused card
you actually raised its limit:
Your new Credit Utilization Score: (7187/27000) x 100 = 26.62
This is not only an improvement but the score has fallen below the
target of 30, which credit bureaus believe makes you a much lower
risk (and consequently deserving of a far better credit score).
OPTIMIZE YOUR CREDIT UTILIZATION SCORE
1. Find out when your card issuer reports to the credit
bureaus
Call each of your card issuers and ask when they report to
the credit bureaus (they are obligated to tell you). In general,
they will all report once per month. But, this will not
necessarily be when your bill is due. You may be a “perfect”
payer. You may pay all your bills on cards, but then clear the
entire card balance every month when it is due.
© SIMPLEOLOGY®
PAGE 6 EASILY BOOST YOUR CREDIT SCORE BY 30%
Now imagine you make your payment on the 10th of the
month, but the issuer reports to the credit bureaus on the 7th.
By the 7th your cards are almost at their limit. You will
appear to the credit bureaus as carrying a high balance every
month, and your Credit Utilization Score will be high. By
adjusting your payments to be a day or two BEFORE an
issuer reports to the credit bureaus, you will significantly
improve your score.
If this becomes too complex, consider paying your balance
twice per month instead of once. If halving the time between
your payments will keep you below a Credit Utilization Score
of 30, this can be equally as effective.
2. Increase your available credit
As demonstrated in the worked example, increasing your
available credit can improve your Credit Utilization Score.
For example, if your credit limit is $5,000, and you charge
$2,500 to your card every month, the result is a Credit
Utilization Score of 50. But, if you raise the limit to $10,000,
and still only charge the same $2,500, the result is a Credit
Utilization Score of 25. If you lack excellent credit, consider
opening a secured credit card and adding to the security
deposit over time.
© SIMPLEOLOGY®
PAGE 7 EASILY BOOST YOUR CREDIT SCORE BY 30%
However, there are two important things to remember about
this strategy:
1. It can result in a hard inquiry on your credit, and
2. It is only effective if you will not be tempted to use the
increased credit to increase your spending.
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DISCLAIMER: The information contained in this document is general in nature, for information
purposes only, and does not take into account your personal situation. You should consider whether
the information is appropriate to your needs seek professional advice from a financial adviser.
© SIMPLEOLOGY®
