How To Improve Your Credit Score

    By Marv Dumon | Small Business

    Given the state of the U.S. economy, maintaining one’s credit scores can be challenging.  The unemployment rate hovers at nearly eight percent, and 47 million Americans are depending on food stamps to supplement their nutrition.  For those lucky enough to be gainfully employed and/or have sufficient passive income (such as dividends and rental properties), it’s important to constantly find ways to improve their credit score.

    Bad credit can haunt consumers for several years.  It can be a liability when interviewing for a new job.  It causes your interest rates to rise, or face outright rejection when attempting to secure an auto loan or mortgage.  Studies show that people with bad credit ratings are disproportionately overweight.  Thus, we can infer that high levels of debt can affect one’s self-esteem.

    Here are a three ways to improve your credit rating:

    1. Pay down your debt.  A high debt ratio will hurt your credit scores because it shows an elevated level of risk for lenders.  Instead of purchasing new items, use your cash to reduce your balance on auto loans and credit cards.  Cash is always king.  Debt enslaves people because it restricts their freedoms.  Debt ruins one’s psychology.  Cash instills confidence.
    2. Don’t close all credit card accounts.  Have some available credit limit to show that your current debt levels are significantly below your maximum borrowing potential.  The payments and reduction in balances show responsibility and personal accountability.  Knowing that you have emergency reserves in your borrowing potential will help you sleep better at night.
    3. Maintain low balances on several credit cards and set up an automatic process to ensure you don’t get docked points for late payments.  This method increases a consumer’s credit score as opposed to someone who routinely maintains high balances on one or two credit cards.
    How To Improve Your Credit Score image Dimes Flickr 300x225How To Improve Your Credit Score

    Credit: Flickr (Commons)

    Personal credit scores are tracked and reported by three major credit bureaus: Equifax, Experian and TransUnion.  If a creditor, such as a credit union or financial institution, writes off your debt, the incident will stay on your reporting history for years.  For many consumers, it stays on for up to seven years.

    The Fair Credit Reporting Act (FCRA) determines the maximum amount of time incidents can stay on a credit report.  The three credit bureaus track skipped payments, foreclosures, collections, tax liens, repossessions, judgments, bankruptcies, and write-offs.  Companies, such as MSI Credit, helps individuals repair their credit scores.   Most providers conduct an audit to ensure credit reports are accurate and errors are removed.  The latter has recently been a challenge in the industry due to an increase of identity theft and fraud.  Credit repair services aside, the best way to improve one’s credit rating is to maintain healthy cash reserves, invest in income-generating assets, and using these funds to maintain low, serviceable balances.

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