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Amounts Owed

29.5% of your FICO score

Amounts owed can be broken down into two parts, available credit on revolving accounts and proportion of loan amounts owed to the original loan amount.

The balance owed on installment accounts, such as mortgages and auto loans, should ideally be 49% – 30% of the original loan amount.  Considering the difficult nature of paying down an auto loan or mortgage this is the most difficult aspect of the FICO score to control.

The amount of revolving debt you owe in correlation to the amount of debt you can borrow (Limit) is your available credit.  For example, if you have a credit card with a $1,000.00 limit and you carry a balance of $300 on it, your available credit is $700 (70%).  Think of this as your buying power, this is the amount of credit at your disposal at any given time.  The key here is to find the correct balance of debt to limit ratio to maximize your credit score.  An available credit of 100% means that you don’t have any revolving debt, and even though you have open revolving accounts, your credit score will be penalized because of your failure to borrow.  An available credit of 0% means that you have borrowed to your capacity and you don’t have any available credit at all.  To lenders, this shows that you are depending on your credit cards too much.  A credit card is supposed to be a tool of convenience not a crutch.  Not having any available credit can really hurt your score.

Ideally you want to have 70%-75% available credit on your revolving credit accounts.  To maximize your FICO score use your credit every month.  Put 25% to 30% on your credit cards and pay them off at the end of the month.  This way, the credit card company reports a balance to the three credit bureaus and you don’t have to get stuck paying through the nose in interest.  A Credit Firm consultant can create the right plan for you.

Note: When paying your credit card at the end of the month, it’s a good idea to leave a 1.5%-3% balance on the card at minimum.  This way the credit card company will make a little money off you and will be more likely to raise your credit limit when you need it.

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