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Improve Your Credit Score

By: EconomyWatch Date: 25 August 2009

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A credit score is a numerical figure that enables potential creditors to assess your credit worthiness. Hence, it is necessary to maintain and improve your credit score to present:

better financial health
develop accessibility to a wider range of finances

Improve Your Credit Score: Avoid Common Mistakes

Here are some common pitfalls to avoid if your focus is to improve your credit score:

Closing old accounts: It not only cuts short the credit history, but also lowers your available credit. A high amount of credit is detrimental to your financial state. Having very low credit limits may heighten the uneasiness of lenders.

Solutions include:

Make small purchases at periodic intervals, such as every six months to keep the credit cards active.
Improve your credit utilization rate and lengthen your credit history.
Reinstate your financial efficiency to potential creditors.

Debt reduction: This implies requesting creditor to lower credit limits in exchange for immediate payments. Even though such a system helps you to settle your debts faster, it is damaging to your credit scores because the creditors may feel that you are incapable of bearing the interests.

Solution is:

Resort to debt reduction practices in dire circumstances.

Consolidating accounts: To improve their credit scores, people tend to either transfer balances to a low limit card from a higher one or concentrate credit balances into a single card. However, this practice worsens rather than improve the credit score.

Solutions are:

to improve your credit score
to maintain smaller balances in a few cards rather than hoard a huge balance into a single card.

Applying for multiple credit cards together: Every time your credit score is checked by a party, it remains on the record for a year. If you apply for a loan or a credit card to a large number of creditors at once, you create a negative impression. Creditors feel that you are enduring financial troubles or accumulating debt.

Solutions include:

Improving your credit score.
Minimizing the number of inquiries.
Evaluating your credit options and applying only to the best-suited agencies.
Approaching lenders who have already extended credit to you, as they already have a copy of your credit report and score.

A final tip is to maintain a consistent credit track record and not just improve your credit score when planning to acquire credit.