23
Oct

There is no quick fix for a low credit score, despite the many magic bullets promised in ads online, on tv, on the radio, and everywhere else you look. The first step to addressing a low score is to check your report from each of the three main credit reporting agencies: Experian, Equifax and TransUnion. When you pull your report you will receive information about which factors are impacting your score.

Your payment history and credit utilization ratio are some of the most critical factors in determining your score.

Payment History:

The first and most important thing you can do is to pay on time. Credit is your reputation; do you have a good or bad reputation for repaying your debts on time? Even if you have had trouble keeping up in the past, time will help heal your problems, as older delinquencies fall off of your reports with age and are replaced by more recent on-time payments.

Credit Utilization Ratio:

Your credit utilization ratio is simply the amount of debt you have divided by the amount of credit you have available. An example would be that you owe a total of $50,000 on credit cards and installment loans (revolving credit) however have $75,000 in available credit. In that instance, you are using about 67% of available credit. It is generally recommended that your utilization rate remains below 30%. A low score shows that you haven’t “maxed out” your
cards!

There are a number of ways to influence your credit utilization ratio:

1. Pay your credit card balances in full every month. (If you can’t pay the balance in full every month, then make payments at least large enough to cover that month’s interest and a little more, to bring down the balance over time.)
2. Do not close unused accounts. These will help to improve the ratio since it is available, but unused credit.
3. Request an increase in the credit limit on your existing accounts. Be cautious however – too much available credit can also work against you. The creditors are concerned that you could max out those limits!
4. Open new accounts. This can be a real double-edged sword: new account can have a short-term negative impact. Too many open cards, credit limits that exceed your income, and the credit inquiries made by creditors when you apply for the new account can likewise negatively impact your score.

Finally, when you are making a review of your report make certain to dispute any mistakes. Inaccurate information on your report can have a severe and lasting impact on your score, dragging it down, no matter how hard you try to improve it.