A Credit Repair Strategy that Works

June 15, 2009

By Mike Wayman

One of the credit repair strategies that works for consumers is to manage your debt ratios on consumer credit cards effectively. For example let’s say that consumer A has three credit cards with Chase, MBNA and Discover. Each have various balances and limits. For the purposes of illustration let’s assume consumer A has the following profile:

Chase card: balance $4374.00 limit: $6000.00
MBNA card: balance $2463.00 limit: $3000.00
Discover card: balance $3225.00 limit: $4500.00

Calculating the existing debt ratio on each card is simple: just divide the existing balance by the credit limit. The existing debt ratios on each of these cards is:

Chase card: balance $2374.00/limit: $6000.00 = 39.6%
MBNA card: balance $1463.00/limit: $3000.00 = 48.8%
Discover card: balance $2225.00/limit: $4500.00 = 49.4%

Maintaining a high ratio negatively affects your credit score. Typically, it is advised that your debt ratio on any given credit card stays lower than 25%. If you can afford to pay them down, do so. If not you still have a number of options at your disposal.

One option is to call your credit card issuer and ask them to increase your credit limits to make your ratios on your cards reach a limit that will improve your credit scores.

Another option at your disposal is to look for a new credit card that will give you a high enough limit to reduce your ratios so your score can benefit.

The recession has limited the practicality of this strategy as many credit issuers are scaling back on increasing credit limits. You can always inquire with your credit card issuer if they are offering credit limit increases before you ask for an increase in your limit.

With the credit markets drying up, seeking out trustworthy credit repair companies is a very good option that you still have at your disposal.