The benefits of having a high credit score are endless. The easiest way to see the enormous benefit is by looking at what happens when you have BAD credit. Here’s a classic scenario.

Example of Buying a $300,000 Home

Right now interest rates are extremely low. If you have ‘A’ credit, you can expect to get a 30-year fixed mortgage at 3.75 percent (As of 9-12-2012). That would mean that you can expect to make a monthly payment of $1389.35 and pay a total of $500,166 over the 30 year term.

On the other hand, if your credit score isn’t that great, you could end up paying 1.5 percent more interest over the same term and that would take you to 5.25 percent.

At 5.25 percent, you will end up with a payment of $1656.61 per month. Over the 30 year term of the loan, you would end up paying $596,379.60, an increase of $96,000.

Let’s make a long story short; having bad credit is a terrible idea.

Before you take out any loan, you should be doing everything in your power to improve your credit score as much as possible. If you do, you will save yourself a ton of interest over your lifetime.

The Fastest Ways To Improve Your Credit

1. Pay Down Your Revolving Credit

A full 30 percent of your credit score is calculated by comparing your revolving debt (basically credit card debt) to your available credit. So, if you have credit card limits of $1,000 and you owe $900 on them, it’s KILLING your credit.

You have to commit now to getting that turned around. Do whatever is necessary to pay off that debt. Sell things if you have to because it will be worth it. Is it worth selling a car or furniture to save yourself $96,000 in interest? Let me answer that for you – yes it is!

2. Increase Your Credit Limits Without Increasing Debt

Another sneaky tactic that can really help out is to get credit line increases. If you owe $900 when your available credit is $1000, it kills you. If you owe $900 and your available credit is $10,000 or even $5,000, it doesn’t hurt you that much.┬áIt’s the ratio that matters.

When your credit limit is only $1,000 in this example, you’re using 90 percent of it. If your credit limit is $5,000, you would be using less than 20 percent of it. Again, it’s the ratio that matters.

Increasing your credit lines is a somewhat involved process, but it doesn’t have to take that long. Most of the time, you can simply request an increase. Often, you can do this online – in your online card account. In some situations, they will prompt you to call to talk to a representative. Other times, you will get approved instantly. I would recommend trying to raise the limits on all of your cards. The higher they are, the better your credit score will be (if you have a balance).

If you would like to learn more, you can visit the 650 credit score blog. It will help you to learn to improve even further.

Pitfalls and Traps

The biggest problem you can run into when increasing your credit limits is that you will spend more. It’s easy to say that you won’t but let’s be honest. If you find yourself in a situation where you’ve spent $900 out of a possible $1000, you don’t have a good track record. It isn’t going to get any easier to not spend.

You have to commit to change! Stop spending money that you don’t have.

How Quickly Will My Credit Score Change?

When you change the amounts of debt or available credit you have, your score will update as soon as those changes are reported to the credit bureaus. This process will happen within 30 days!