The credit limits on your accounts are determined by a credit score. People who receive the best credit scores have significant assets, very little debt and a great credit history. So, how is your credit score determined?
The three major credit reporting agencies each use different calculations, but, generally, the following factors are considered:
* Length of employment
* Level of income
* Credit /payment history
* Number of accounts
* Ratio of balances to credit available
Although, there are a variety of credit scores available for use, banks and lenders typically use a FICO score to determine creditworthiness for consumer credit, car loans and mortgages.
A FICO score is intended to determine the probability that a borrower will default on a loan. There are several calculations that FICO uses in determining a credit score. They are broken down as follows:
* 35% – Timeliness of past payments (over 30 days past due)
* 30% – Amount of debt – ratio of current debt vs. available credit
* 15% – Years of credit history
* 10% – Various types of credit used
* 10% – Recent credit applied for and credit approved
Some other factors FICO considers are relatively recent court judgments, liens, number of open accounts and number of recent applications for credit (credit checks). A higher FICO score will enable you to get a loan and a better interest rate on your loans. The higher your FICO score, the lower your interest rate.
In the current troubled economy, what with all the foreclosures and the credit crisis, it is becoming increasingly more challenging to obtain credit. Just two years ago, you could get a mortgage with a credit score under 650. Now, you’re fortunate if you can get one with a credit score of 680. The cutoff keeps moving upward monthly in this down economy.
Request a Credit Increase
Before you begin your quest to request a credit increase, check out your credit reports. Federal law allows you one free credit report per year. Make sure you request yours from each of the three credit reporting agencies.
You’ll want to look each one over, since each of the reporting agencies may have different inaccuracies. Inaccuracies or discrepancies on your credit report can definitely hinder your ability to get approved for more credit.
Below are several inaccuracies you should look for:
Closed Accounts. Make sure accounts you closed are actually closed, and are notated as being closed by you not the creditor.
Open Accounts. Make sure the accounts notated as open are actually open. If not, submit the appropriate changes to the credit reporting bureaus to close the accounts.
Timeliness. Challenge any reporting that indicates you were slow or late in paying when you have proof. You’ll need to contact the creditor first to resolve the reporting, and ensure the creditor updates your credit report after it is resolved.
Identity Theft. Contact the credit reporting agencies immediately if you find activity that you never initiated. They can put a notation on your credit report that requires you to be contacted before any further credit is awarded.
Missing Accounts. Look for accounts that you’ve paid off. If you see any missing, contact the creditor and request that they add those accounts to your credit report. Paid off accounts reflect positively on your credit.
Are you self-employed or do you have income from other sources?
Other factors that may hinder your ability to obtain more credit could be that you are self-employed or have income from other sources not easily verified by lenders. In those cases, you’ll need to provide your tax returns and other valid receipts to prove your income to the lender. Many individuals work as contractors, and receive payment through an online means. If this is you, make sure you print off your monthly statements to show proof-of-income, and to use when filing your taxes.
Ready, set, go!
Now, you’re ready to request a credit increase. If you want an increase on your credit card, you’ll need to contact your credit card company directly, and ask them to allow you a credit increase. Typically after six months of on-time payments, a credit card company will increase your credit limit if you’ve not been late or over-the-limit. They make a determination based on your history with them, and sometimes use an update of your credit score.
Some credit card companies allow you to request a credit limit increase online. You simply login, verify your information, request the increase, verify the increase and wait for the response.
Oftentimes, you don’t even have to request a credit increase on your credit card, if you are paying on time and are paying your balance down. The credit card company will automatically increase your credit about every six months.
Related posts:
- Credit Score Models
- Checking your Credit Score
- What is a Foreclosure?
- How do I begin correcting my Credit Report?
- Information Provided With Credit Reports
FAQ: How do I check my Free Credit Report?
Your credit report is the basis for your financial standing. No matter how slick or smart you may be, no bank will touch anyone with a low credit score. It's their money, why would they want to take a bigger risk than they need to?
If you don't know where your credit report score is at, now's the time to take a peek. Don't get surprised with a low credit score when you go in to review your report with a potential lender or even an employer, find out for yourself within minutes.
