Increase credit scores while reducing the overall debt

The first question that comes in mind is that “is it really possible???” Yes.. It is possible. There are ways to do it but it can be done. You just have to follow few steps to see your credit scores going up while reducing the debts. You need to be a little more dedicated and do careful planning. Once you have the perfect control over your finance, you can turn your financial life and status around.

Most of the people focus on one aspect only and that is reducing debts? Why do you need to think about one aspect only when you can focus on reducing debts as well as increase your credit scores?

• The spin down method.

Most people use the “roll down” method while eliminating their debts. The better and easier option is to spin down all your debts and make it more manageable and realistic. Recent statistics show that this method has been very helpful to the average consumer.

1. Determine your percentage of obligation (POO) for each card/account: It sounds fancy (and a little humorous in a childish way!), but it’s very easy: Simply divide how much you owe by your total credit line. For example, if you owe $800 on your primary card and your total credit line is $1000, then your percentage of obligation is 80 percent. You mind will get immediately focused towards your obligations and you will make every effort to pay back
   
   
2. Decide on a monthly payment amount: Set aside the same amount each month (as much as you can afford) to put towards eliminating debt. It doesn’t matter if it’s $100 or $1000, as long as you know it’s consistent and, preferably, automatic.
   
   
3. Get the POO for each account to 50%: While exact details of how your credit score is determined are unknown, it is accepted that a POO of 50 percent or above will negatively affect your score. So, starting with your highest POO account, make your monthly payments until it’s at 50 percent, and then move to your next highest POO account.
   
   
4. Now, go for 30%: Once you have all of your accounts down to 50 percentage of obligation, commit your monthly payments to getting them all to 30 percent, starting with the largest. If you have come this far, you have to have the faith in yourself that you can do it and achieve your final aim.
   
   
5. The home stretch: Now that your debt is significantly reduced, you can begin using the more common roll down technique of paying off each remaining card, starting with the one with the highest interest rate.

By using this method, you are not increasing your credit scores significantly, but you will also reach your goals sooner than if you simply stuck with the traditional roll down method the entire way.

That’s why the spin down method is the best if you are looking to increase your credit scores while reducing your existing debts.

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Fallacy: My scores determines whether I will get credit or not!Fact: There a number of facts that a lender will consider before making a credit decision. This well includes your FICO scores. They look at the amount of your debt and figure out whether you will be a potential risk to their finance after extending new credit. They also go through your employment history and credit history. Based on their perception of this information and the specific underwriting policies, lenders may grant credit to you even if the scores are low, or decline your request for credit even if you have high scores.

Fallacy: A poor score will haunt me forever.Fact: This is not true. Your credit scores depict your financial picture at a particular point of time. It keeps on changing when new information is added to your bank and credit bureau files. Your scores will keep changing after your creditors report your account status to the bureaus. Lenders request a credit score when you have submitted a credit application. They will get the most recent information from the bureaus if you have already been paying regularly to your other creditors.Fallacy: Credit scoring is unfair to minorities.Fact: Scores are based on credit related information only. Gender, race, nationality and marital status do not put any affect on your credit scoring module. Equal Credit Opportunity Act (ECOA) prohibits lenders from taking this information when issuing credit. The policies should be same for minorities or people with little credit history.

Fallacy: Credit scoring infringes on my privacy.

Fact: Any lender will have to evaluate your credit potential on the basis of your credit bureau report, credit application and/or your bank file. They don’t need to go through any other information to decide whether to offer credit or not. Lenders using scoring sometimes ask for less information - fewer questions on the application form, for example.

Fallacy: My score will drop if I apply for new credit.

Fact: If it does, it probably won’t drop much. If you are applying for too many credit cards within a short time, there will be inquiries showing on the credit report. Looking for new credit might equate with higher risk. If you are having inquiries from auto or mortgage lenders, it will have a least affect on your credit scores and will show up as a single inquiry.