Three Tips to Improve Your Credit Score
Today, there are many people who have bad credit, this is may be due to the bad economy. If you like many other people who have bad credit and want to learn a few tips to improve your credit score, you have come to the right place. There are many myths and falsehoods when it comes to improving one’s credit score. In this article, we will try to straighten things up and share with you three great tips that you can actually use to improve your credit score.
Tip #1: Don’t have zero balances
One false presumption most people have is that if you want to be perceived that you have a good credit score, you must keep all your credit card balances zero. However, in reality, this is not the case. The lenders don’t care whether you have zero or non-zero balances in your credit card. They want to know whether you have the ability to pay some interests or not. That is what the lenders care about, the main reason why they lend you money is so that they can make money off of you (from the interests you pay). Therefore, it may sounds odd but if you want to improve your credit score, you should be paying some interest!
Tip #2: Lower your Balances to Less Than 50%
Called credit utilization in the business, this is the amount of credit a person uses compared to the credit limit. For the best result strive for anywhere between 30 – 50%. This may seem counter-intuitive, but you are not trying to lower the amount of interest you are paying, rather, you are trying to improve your credit score.
On this same point, make sure that your lender reports your credit limit correctly. The Federal Reserve is aware that some credit card issuers are not reporting an accounts credit limit. The likely culprits are store cards and Capital One. Make sure you monitor your credit at least yearly, and try not to open accounts of this type.
Tip #3: Don’t Close Your Accounts
Another myth or falsehood many people believe that they can improve their credit scores is to close their accounts. This is not true because when you close accounts, the records are actually still remained in your credit report. In fact, closing accounts can do more damage to your credit score because your credit report will show that you have a short credit history. You see, lenders want to see that you have long credit history. So, if you want to improve your credit score, don’t close your accounts. Don’t listen to the myths out there. If you check with Fair Isaac Company, creators of the FICO score, they will also advise you not to close your accounts.
Another issue to consider when closing an account is that your credit utilization could also rise. If you had a $1000 card that was closed, once the balance is paid off, your total amount of available credit drops by $1000. This will raise your credit utilization ratio, and your FICO score doesn’t take into account what your utilization rate used to be.
Conclusion
There are very few people who actually have a perfect credit score nowadays. If you are serious about improving your credit score, make sure you follow the 3 tips that we have just shared with you above. Do not believe what others say because most of them are actually giving you the wrong information. Make sure you get your credit report from all three credit bureaus at least annually so that you know your FICO score and can take action to improve it if neccessary.
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