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Written By: Terry Price
Five Steps To Improve Your Credit
In today's economy, good credit is fast becoming more important than ever. The "credit crunch" is the result of lenders being much more cautious about making loans, particularly to borrowers with a less-than-excellent credit rating. Improving your credit means not only raising your credit score, but also gaining a higher credit limit. In this article we will give you five basic steps you can take to improve your credit.
Step #1: Get a copy of your credit report. You can't fix what you don't know. Find out what your potential lenders already know about your credit history by requesting a copy of your credit reports from the three major credit bureaus. The copies are free, once a year, from annualcreditreport.com. This is the website set up by the credit bureaus themselves. Be careful when typing in the web address, since there are many sites with very similar names that would love to sell you what you can get for free from the official site.
Step #2: Review and Remove. Carefully read your credit report, keeping an eye out for any outdated or inaccurate information. It is your right to get that data removed from your credit file. You can also request that negative information be deleted, but you will have to substantiate your claims.
Step #3: Keep low balances on your credit cards. High outstanding debt will adversely impact your credit score. Maxing out your credit cards is so last century! Today lenders will favor folks who carry a manageable amount of debt on their cards. Here's tip: Do not pay off your entire balance every month. Believe it or not, that may hurt your credit score. After all, lenders make their money by charging interest on the balance; if you're not paying at least a little interest each month, you're not profitable to the lender.
Step #4: Build your credit limit. Each of your lenders typically assign you a credit limit-an amount which you cannot exceed. If you add up all your lines of credit you have your "high credit limit." An equally important number is your debt-to-credit ratio. Lenders would like you to carry a reasonable amount of debt for your high credit limit. Unfortunately, many Americans have a debt-to-credit ratio that is way too high. For example, if you have $10,000 in unsecured revolving accounts and you owe $8,500, your debt-to-credit ratio is 85%. That is bad news for your credit score. One way to correct that problem is to obtain a sub-prime merchandise card. These cards are available to families with poor credit, but the catch is you typically have to put down a deposit, and you can only buy from the company that sold you the card. Sub-prime merchandise cards are not VISA or MasterCard, but they do report to the credit bureaus, and therefore will help raise your high credit limit and restore your debt-to-credit ratio.
Step #5: Pay your bills on time. This sounds simplistic, but it is critical to keeping your credit rating heading in the right direction. Just a few late-pays will negate all the good work you've done toward improving your credit.
Start now to improve your credit, and soon you will reap the rewards of lower interest rates and a higher credit limit. And life will be good again.
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