Your outstanding debt determines approximately 30% of your credit score. Credit scores take into consideration the difference between the amount of available credit you currently have and how much of it you are using.

Specifically, for the purpose of the credit score, available credit can be broken down into two parts:

1. Mortgage and installment loans – these loans are evaluated by calculating the amount of the original loan versus the remaining unpaid balance. Installment loans are typically mortgage and car loans or home improvement loans which have a set monthly payment extended over a finite period of time. Note – carrying several mortgage loans as a result of income property may impact your credit score as the additional mortgages can significantly increase the amount of debt on your credit file. Mortgage lenders will generally consider the additional rental income when making a decision on a loan.

2. Revolving Credit – although mortgage and installment loans are included in the calculation, your revolving credit account balances are very significant and can potentially have the most impact on your credit score within this category. Your revolving credit is evaluated by your “total revolving credit utilization ratio”. This ratio is calculated by dividing the total balance owing on all your open credit cards into the sum of the total credit limits for all open credit cards.

Note: – Only transfer balances as a last resort. It is always more advantageous to pay down the balance, especially on high interest cards.

Warning – If you exceed your credit limit on revolving or installment accounts, it may severely impact your credit score, and cause additional service fees and penalties to your account.

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