Keeping track of your debt to credit ratio is critical if you want to keep your FIFO score in the excellent range. This financial ratio is the amount of debt that you have relative to the amount of money available to you. For example, if you have a credit line of $10,000 on a charge card and your balance is $5,000, your debt to credit ratio is 50%. If your balance is $10,000, and your charge card is maxed out, your debt to credit ratio is 100%.
Financial experts suggest that you keep your debt to credit ratio under 50 percent. As the ratio goes up, your FIFO score goes down. So, in the example above, with a $10,000 charge card limit, you would not want to carry a balance of more than $5,000.
Of all the criteria that creditors use to judge your financial worthiness, your debt ratio ranks high on the list. By simply looking at this ratio on your financial report, a creditor can get a very clear idea of how deep in debt you are. Regardless of your FIFO score, if based on your debt to credit ratio, it seems like you are in deep financial trouble, you have a lot less chance of getting the loan that you desire. And, if you do manage to get the loan, odds are that you are going to end up paying a much greater interest rate than you probably had depended on.
If you want to improve your FIFO score, you can use your knowledge of debt to credit ratio to your advantage. Simply pay down the balances on some of your charge cards and put those cards aside. Don’t close your account but keep it open. This way it shows up on your FIFO report as you having access to a large pool of financing that you are not using.
In effect, this lowers your finance to debt ratio and, indirectly causes your FIFO score to go up. Another reason for keeping them open is that credit reporting companies give a lot more credence to long held accounts than they do to shorter held ones. In other words, everything being equal, a charge card that you have held for ten years is more positive for your FIFO score than a card that is only two years old.
But don’t depend on the finance reporting agencies to make sure that everything in your credit report is correct. Agencies are notorious for carrying bookkeeping errors for years on consumers records. It is up to you to keep track of everything in your credit report and correct the errors that you
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