Most individuals would like to know how to easily and quickly improve their credit score but there is no quick fix to improve a credit score. Unfortunately, there is considerable advice meant to help which may actually harm the score. Credit scores are based on several factors some of which are relatively easy to understand and some appear to be shrouded in mystery. The following tidbits of advice when examined carefully are usually found to be detrimental to a credit score rather than helpful.
Requesting a lower credit limit can harm your credit score as it reduces your ratio of what you owe to your available credit. This ratio is termed your utilization ratio and approximately 30% of your credit score is based on this ratio. Taking the opposite approach of opening several new credit cards in an effort to reduce this ratio is not effective as numerous credit inquiries and newly established credit can actually lower your score. This action effects the age of your credit history which comprises roughly 15% of your credit score. Any new credit cards when averaged with your older cards will reduce your overall average credit card age. Almost as detrimental to your score is not using one of your older credit cards and taking the chance the issuer will close the account. Losing an older line of credit from non-use will hurt your utilization ratio as well as reduce your average credit card age. To overcome this possibility, most credit experts recommend using each of your cards at least twice a year then immediately paying it off. This action will usually keep the issuer from closing the account yet not cost you any interest.
Another typical piece of questionable advice is paying off an installment account early particularly if the interest rate is lower than one of your credit card rates. This action raises your utilization ratio as once an installment loan is paid off the account is closed thus reducing your available credit. If you have any extra money, it would be much better to pay a credit card with a high interest rate.
Negotiating with a lender to settle your debt for a reduced amount might be advantageous to your overall debt load but it must be done in a particular manner to avoid harming your credit score. Part of your negotiation must be getting the lender to agree in writing to report your debt as “paid in full” as opposed to “settled for less than the balance”. Settled indicates the lender had to take less than the amount owed which typically harms your credit score. Additionally, if potential new lenders view the term “settled for less than the balance” on your credit report they might be concerned you are a credit risk as you did not fulfill a prior lending agreement.
Before taking any advice meant to help you improve your credit score, examine it carefully to ensure that following the advice will actually help rather than harm your score. The one piece of advice proven to help increase a credit score is always paying on time as 35% of your credit score is based on your payment history.
