4 Strategies to Avert the Pitfalls of a Less-than-Optimal Loan Score or Credit Card Issue
A poor credit score can make it more difficult to obtain loans or credit cards, or even put you in a situation where your interest rates are higher than if your credit were better. This has an enormous effect on your finances, especially when borrowing for larger purchases like a home or car.
The initial step to improving your credit is understanding your credit history and what factors contribute to it. This means being aware of how much debt you owe, what types of credit are available to you, as well as when and how often you pay bills on time.
Maintain a low balance on revolving credit such as credit cards and don’t transfer debt from one account to another. According to FICO, keeping your outstanding balances under 10% is one of the most efficient ways to boost your credit score.
Be aware of any inaccurate information on your credit report; most negative items can remain for seven years or longer. These could include lawsuits, liens, judgments, bankruptcies and wage attachments.
Be sure to dispute any errors on your credit report within 30 days of becoming aware of them, and follow up if the reporting company doesn’t respond after that deadline has elapsed.
Rebuild your credit with responsible use of revolving credit such as credit cards and installment loans by making timely payments and staying within credit limits. Opening new accounts only when necessary and closing those that you no longer require should also help boost your score.
Reduce Your Debt-to-Income Ratio, or Credit Utilization Ratio: Your debt-to-income ratio or credit utilization ratio is an important component of your credit score and indicates how much of your monthly income goes towards payments such as rent or mortgage payments. You can improve this ratio by making timely payments and asking credit card companies for higher limits when you feel your balance is getting too high.
Avoid Multiple Hard Credit Checks: Lenders may take notice of more than three or four hard credit inquiries within a short period of time, potentially raising questions about why you want access to their credit so quickly and whether or not you will be able to repay it. Therefore, it’s best to avoid multiple hard credit checks at once.
Lenders take note of any derogatory marks on your credit record, such as collection accounts. They want to ensure you won’t repeat a debt issue, so paying off collections after receiving a bad mark can improve your credit rating.
