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wealthy but debt ratio is high

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wealthy but debt ratio is high

How do you increase credit score when you make alot of money but spend alot of money too?  You have high credit card bills but pay them off each month but your limit is not high (because you don't need a higher limit).  You have refinanced your mortgage so your balance owed basically equals the outstanding balance (even though you have hundreds of thousands of dollars of equity in your home).  You have large balances on a few car loans BUT you put large down payments on these cars AND you own several cars outright with no loans. 

 

How do you show that in your credit? 

 

My credit score is coming back "bad" when i actually pay ALL my bills on time and pay my large credit card of $20,000 off monthly.  I am making double mortgage payments and don't have any deliquent payments.

4 REPLIES
Established Contributor

Re: wealthy but debt ratio is high


jss104 wrote:

How do you increase credit score when you make alot of money but spend alot of money too?  You have high credit card bills but pay them off each month but your limit is not high (because you don't need a higher limit).  You have refinanced your mortgage so your balance owed basically equals the outstanding balance (even though you have hundreds of thousands of dollars of equity in your home).  You have large balances on a few car loans BUT you put large down payments on these cars AND you own several cars outright with no loans. 

 

How do you show that in your credit? 

 

My credit score is coming back "bad" when i actually pay ALL my bills on time and pay my large credit card of $20,000 off monthly.  I am making double mortgage payments and don't have any deliquent payments.


Credit scores aren't an indication of wealth, but rather of the ability to pay off debt. They don't care if you have millions in the bank because that money isn't being used to wipe out debt. They do care if you have a lot of loans and credit at or near 100% balances. The assumption a bank will make is that if you could afford to pay off a debt, you lilkely would have already, so income takes a back seat to solvency in the FICO world.

 

If you're PIF each month and not carrying balances, you'll want to increase your limits and/or spend less for a few months to drop utilization. That will increase score and you can increase your limits to the extent that what you're normally spending each month isn't maxing out your limits. Your scores will go up and stay up once that happens.

 

Regarding the loans, if the loan balances aren't decreasing, then it doesn't matter how much you put down or are paying each month - the balances aren't going down. As the balances go down, your scores will go up. Refinancing is just taking a new loan with your equity as collateral, which means you now have yet another line at 100% utilization.

 

Message 2 of 5
Valued Contributor

Re: wealthy but debt ratio is high


jss104 wrote:

How do you increase credit score when you make alot of money but spend alot of money too?  You have high credit card bills but pay them off each month but your limit is not high (because you don't need a higher limit).  You have refinanced your mortgage so your balance owed basically equals the outstanding balance (even though you have hundreds of thousands of dollars of equity in your home).  You have large balances on a few car loans BUT you put large down payments on these cars AND you own several cars outright with no loans. 

 

How do you show that in your credit? 

 

My credit score is coming back "bad" when i actually pay ALL my bills on time and pay my large credit card of $20,000 off monthly.  I am making double mortgage payments and don't have any deliquent payments.


You can set up auto pay on your credit cards to pay balances on all cards [but one] in full just before their statement cut dates. Allow your most frequently used card - one with a relatively high limit - to report a statement balance. By doing this your utilization on all cards but one should report as zero. Also, this technique should drop your aggregate utilization substantially.

 

The three key factors for credit score relating to revolving credit cards are:

1) Aggregate utilization (all cards combined). This is the most influential and you want aggregate utilization to report under 9% for best score. If that is a problem for you, atleast make sure aggregate utilization reports under 29%.

2) Utilization on individual credit cards that do report balances. This is less influential than the above but still important. For best results keep utilization under 29% on the card with the highest reported % utilization. If that is a problem, then at least keep the card utilization below 49%

3) Number (or %) of open accounts reporting balances. This is an important scoring factor - particularly for Fico mortgage scores. Try not to report balances on more than 50% of cards and preferrably 1/3 or less.

 

Really not much you can do regarding aggregate B/L on installment loans other than making payments as required and allowing balances to drop over time. Given you have a mortgage, I suspect two years of ontime payment history should boost your score nicely. The key here IS payment history. Getting aggregate B/L below 95% and later below 70% may be point boosting thresholds but, that is a bit of speculation.

Fico 8: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 9: .......EQ 850 TU 850 EX 850 (3/2017)
Fico 4 .....:. EQ 804 TU 823 EX 830 (3/2017) EX Fico 98: 839 (3/2017)
VS 3.0:...... EQ 832 TU 832 EX 832 (3/2017)
Fico 8 BC:. EQ 887 TU 899 EX 900 (3/2017)
CBIS: ........EQ LN Auto 940 EQ LN Home 870 TU Auto 902 TU Home 950 (4/2017)
Message 3 of 5
Valued Contributor

Re: wealthy but debt ratio is high

Pay down most of your credit card balances before they ever hit the credit reports, and your scores will increase significantly. Most cards report the statement balance on the statement date. US Bank reports balances on the first of the month. Chase reports zero whenever you pay to zero, so you can get that benefit if you have one of their cards.

 

With lowered utilization, you should be well positioned for credit limit increases.

Message 4 of 5
Frequent Contributor

Re: wealthy but debt ratio is high

Your score is bad because your credit cards and installment loans are reporting each month as being maxed out, making it look like you're in financial distress even though you're not, Fico does not like that. Try paying all your credit cards down to zero except one before the statemnt cuts. Pay the one card down to less than 9% before statement cuts. Once the zero card balances and the one card less than 9% reports to credit bureau. pull your reports and see how much your scores increase. You can then apply for credit limit increases if you so desire. As far as installment loans, the lower their balances get, they will start helping your score.

Message 5 of 5