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So I'm putting some of my summer earnings towards putting down credit debt. But I have a question. How is a credit score calculated? Specifically, I know that the balance to limit ratio is taken into account, but how is it taken into account? Do they add up all your balances and divided that by all your credit? Or do they take the individual ratios and multiply each by some coefficient? Obviously if the former then it just makes sense to pay off the highest interest first, but if the latter then paying off the highest ratio first works better.
Anyway, that's my question, but any other plans for spending that cold hard cash?
Jay Sherman: "How do you sleep at night?"
Renier Wolfcastle: "On a pile of money with many beautiful women."
Anyway, that's my question, but any other plans for spending that cold hard cash?
Jay Sherman: "How do you sleep at night?"
Renier Wolfcastle: "On a pile of money with many beautiful women."
posted by Armen Adzhemyan at 10:58 PM
1 Comments:
That ratio is known as "utilization." And it's done on the total, not for each particular account. But it takes into account secured versus unsecured debt. Creditors prefer secured (and so does your FICO), but that probably only applies to a car and/or a mortgage, if you have one of those. Everything else is unsecured--including your student loans. Advice: definitely pay down the highest interest rate first. Better yet: transfer the high-interest rate loans to a "teaser" offer (if you're getting them; those are the ones that say "No Interest for 6 Months!!!") but then be vigilant and transfer to another teaser when those 6 months are over, if you're not done paying it down yet. Another thing you can do is to call your credit card companies and see if they'll knock some interest rate points off--threaten to switch to another company.
Another thing that kills your score is late payments. Don't be late. And if you're late, call the company and ask them to forgive you just this once when you do pay.
Good luck.
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