In our first #MondayMoneyMakeover, we talked about the #1 factor that impacts your credit score was pay history (aka- no payments 30 days or more late). Today, we are going to touch on the #2 factor, which has ALMOST as much impact to your score as pay history, balance-to-limit ratio. Calm down. I know this is exciting. Well, at least for some of you it should be, because this is the factor that gives you the power to improve your score in a short amount of time.

Your balance-to-limit ratio looks at the balance you owe vs. your available credit lines. This has a 30% impact on your score. Keeping your credit balances below 50% of your available limit is very important. Keeping your balances below 30% of your available credit is even better and can give you the maximum benefit when it comes to your credit score. How do you know what your balance-to-limit ratio is?? Here's a quick explanation:

If you owe $10,000, and you have $100,000 of credit available to you (i.e.- your high credit limit on your credit card), you are only using 10% of your available credit line. On the other hand, if you owe $10,000 and you only have $10,000 available to you, you have "maxed out" your available credit and your credit scores will be very negatively impacted. Therefore, it is not how much you owe, but how much you owe compared to what you are able to borrow.

Because your balances are reported monthly to the credit bureaus, you have the ability to alter this credit impact each and every month. This is the easiest credit boosting strategy out there. It's also a big advantage for those buyers that get pre-qualified months before being ready to buy. It gives the buyer time to get their credit scores up which in turn can get them a better interest rate on their home loan and save them thousands of dollars in interest over the life of the loan.

Below are some practical steps to improve your balance-to-limit ratio:

• Don't close your credit accounts unless it is necessary to do so. It is better to have many open accounts with little or no balance than to have just one or two accounts regardless of the balance.
• Don't concentrate large balances on just a few accounts. Pay outstanding debt down as close to zero as possible, and evenly distribute the remaining balance across all your open credit lines. The key is to keep the balances down below 30% or at the very least 50% of your available credit line(s).
• Call your credit card companies and try to increase your credit limits if they can do so without pulling a new credit report. 
• Find out when each creditor reports to the credit bureaus. Not everyone reports at the same time. Some may report the last day of your monthly cycle; others may report several days before or after. Knowing this will help you make a plan of action to get the balance down before the reporting date. 
• Set a balance alerts with the credit cards that offer this feature. I would imagine all of them do by now (and if not, shame on them). Try setting the alert for 20%-25% so you have more lead time before you hit 30%.  Setting an alert will help keep this top of mind and can keep you from going over the 30% threshold.

Let me know if you have any questions or if I can help in any way!

Stephanie Donnell
Residential Mortgage Loan Originator
NMLS Number: 1031976
Capstar Lending, LLC
stephanie.donnell@capstarlending.com
(512) 459-2453
6836 Austin Center Blvd #110,
Austin, Texas 78731
Corporate NMLS Number: 214411

Capstar Lending, LLC NMLS 214411 (www.nmlsconsumeraccess.org) 6836 Austin Center Blvd #110; Austin TX 78731 512-459-2400. Capstar Lending, LLC is an Equal Housing Lender. This is not an offer to enter into an agreement. Information, rates and fees are subject to change without prior notice. Loan approval is subject to applicant's qualification for a loan program. All products are subject to credit and property approval. Capstar Lending, LLC is not affiliated with any government agency. Intended for Texas consumers only, Texas- SML Mortgage Banker Registration. Residential Mortgage Loan Originator.