The good news is that if you have a bad credit score there are a lot of things that you can to fix it. Even if your score is fair but you are interested in bumping it up to the next category there are proactive steps you can take to make that happen. The first key is to be aware of the things that can drag your credit score down and then determine a solution.
One of the first things to look into is whether or not your creditors are reporting your credit limits to the credit rating agencies. Sometimes credit card companies and other lenders only provide credit scoring agencies with your account balance and not the limit on the account as well which means the credit bureaus plug into their system that your credit limit is the same amount as your balance. The problem with this is it completely distorts your debt to credit ratio, making it look like your credit card account is maxed out when it, in fact, is not. This will cause you to be categorized as a high risk borrower and your credit score will suffer as a result. In order to have the best credit score, your account balances should remain below 30% of your credit limit.
Request a copy of your credit report and go over the information it contains to be sure that all your creditors are reporting your overall credit limit as well as your account balance on all of your credit cards. If this is not the case, call up the credit bureau to dispute the entry and provide them with the limit on your account. Also contact your creditor to request that in the future they report your credit limit in addition to your account balance.
You may also be surprised to learn that having a zero balance on your credit card can hurt your credit score. Lenders are interested in how you manage your debt obligations over time. As soon as you pay off a debt you are no longer managing it although it is a positive entry on your credit report. It is more beneficial to your credit score to use your credit cards regularly for small purchases and always pay off your balance at the end of the billing cycle to avoid accruing any interest charges. This will cause an improvement in your credit score and also demonstrate your creditworthiness to lenders.
Before you decide to transfer all of your outstanding credit card debts to one low interest credit card, stop to think about what the impact will be upon your credit utilization ratio. If the company issuing the new balance transfer card issues you a high enough credit limit to keep your debt to available credit ratio reasonable, then go for it. However, you have a substantial amount of debt you want to transfer be wary of lumping it all onto one card and tying up the majority of your available balance because your credit score will take a hit. Credit rating bureaus place a lot of emphasis upon your debt to available credit ratio – it comprises 30% of your credit score.
Finally, keep an eye on any negative entries on your credit report to make sure that they are not there longer than they should be. Negative activity can linger upon your report for as long as 7 years and bankruptcies can stay there for up to 10 years. However, negative entries do not always automatically get deleted once 7 years have passed. Dispute any items that you find on your report that have been on there longer than they should be.