Going Too Far


Have you ever heard the advice to take on more debt in order to raise your credit score? When you heard that, did you also think "if that is true, then shouldn't more debt raise it higher?"


That latter thought, I believe, is common among people wanting to raise their credit score quickly. It makes a sort of sense too. If doing one thing makes a desirable result, then doing more of it should result in a larger desirable result too. However, that isn't quite how a credit score is measured by the big credit bureaus.


Like it or not, the credit bureaus, Equifax, Experian, and TransUnion, are all still businesses. They rely on their scores as good markers of consumers who are responsible enough to pay back the money they borrow. Many times with interest that can count as profit for the institution loaning the money. The credit score helps show how "responsible" you are with borrowing money.


One way they look at this responsibility is how much you owe versus your income. It is called the debt-to-income ratio. If you owe $25,000 in credit card debt against a $65,000 per year income, it looks better than if you have $70,000 in credit card debt against the same income.


Many people can take that advice, run up a lot of debt, and find their credit scores going down. One reason could be that you have greatly increased your debt-to-income ratio.


There is a solution for those with high debt-to-income ratios though. By intentionally paying down and off some of your debts, you begin to reduce that ratio. The more you reduce it to a level the bureaus see as more "responsible," the better your score should look. It isn't easy, though nothing truly worth doing ever is.