6 Strategies on Credit Scoring, That Lead Toward a Higher Credit Score
By Dennis Cary
We are living in an environment where your credit score
is one of the mane keys to your financial health. Your credit report is very
important, it functions as the major evaluation tool utilized by most
lenders to determine your credit score. It only makes sense to adapt effective
credit scoring strategies to ensure that your credit report gives you the
highest score possible, doesn't it? It's easer than most may think.
Get your Free Credit Report
One of the key credit scoring strategies you can deploy
is to first obtain a free credit report. Each person in the United States is
entitled to one free credit report every year, which can be acquired from these
three agencies: Trans Union, Experian and Equifax. Give it a thorough run
through, paying attention to any negative marks, which may be an error or fraud.
Together with documented proof, approach your creditors to eliminate any
misreported debt that is interfering with your credit score.
Maintain an excellent payment record
Your payment patterns constitute 35% of your entire
credit score. This means that it is essential that you make loan repayments on
time. In fact, missed payment can cause you to lose between 50 and 100
points off your total credit score. Being punctual on your payments is one of
the best strategies to raise your credit score.
Reduce the outstanding balance on your credit cards
Another strategy to raise your credit score, is
to reduce your outstanding balances by paying down most of your debt. This based
on the fact that your credit score is also determined by the gap between your
credit limit and your outstanding balance. Paying off your debt quickly will
definitely help raise your credit score.
Let old accounts remain
Although it is our nature to close our old credit
accounts which we have paid off, doing so may actually produce a negative effect
when it comes to your credit score. This happens as your total available credit
is reduced when you close an account, the result is a seemingly larger
outstanding credit. For example if you have 10 credit cards each with a limit of
$1,000 for a total of $10,000 in open credit, and you are only using $3,000 in
credit, your credit ratio would be 70/30. The 70 represents the amount of open
credit that you are not using and the 30 represents the amount you are using.
Lets say you close 5 of your credit card accounts, because they are already paid
off and your not using them. So you now have $5,000 in open credit and you are
using $3,000 dollars of it. Your new credit ratio would be 40/60, the 40
represents the amount of unused credit you have and the 60 represents the amount
of credit you have used. By closing your accounts that you paid off, you
are closer to your total credit limit. With this, your credit score will
become lower than if you had kept the older accounts active.
Avoid declaring bankruptcy
Declaring Chapter 11 or Chapter 13 may seem like the
easy way out of debt for many people. However, from a credit score perspective,
this will become detrimental as your score will be reduced by at least 200
points once bankruptcy takes place. Moreover, a bankruptcy history stays within
your credit report for at least 10 years, costing you much more in interests
when you acquire credit again in the future.
Too much debt, too little debt
While having too much debt is certain to hurt your
credit score, having too little debt may result in you being not creditworthy.
This stems from the fact that creditors have no basis to determine your credit
worthiness. The workaround for this is to establish some sort of debt – student
loans or gas credit cards, and ensure that you maintain a healthy payment
schedule each month.
Finally, with the right credit score strategy deployed,
there will be no reason why your credit score will cannot be improved. In no
time at all, you will be enjoying lower interest rates as well as experience
ease in obtaining credit from lenders. About the Author Help is just a click away at Credit And You.com, the credit website for those with Bad or No credit. We show you how to build or rebuild your credit using 2 simple steps. Visit this credit repair website now!
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