7 Don’ts to Improve Your Credit Score

The article Credit Repair Could Leave You in A Fix from Los Angeles Times discussed the different issues regarding the use of credit repair companies to correct negative information in your credit reports. According to the Federal Trade Commission and other agencies, companies that claim to repair bad credit usually are conducting this outside the law and rarely get tangible outcomes. It should be noted that every credit repair companies that avoid some of the most unrealistic claims including promises of wiping legitimate reports of late payments break the law as soon as they start charging you for upfront fees. In 2006, the FTC hounded around 20 of the credit repair companies in a crackdown called Project Credit Despair. In addition, the agency has pursued a total of 70 credit repair companies to date.

You don’t need credit repair companies to enhance your credit. Below are the seven things not to do to improve your credit score!

Don’t be a Big Spender at the Wrong Time – You should understand that the larger your total balance as a percent of your total credit limit across all your credit cards, the lower your score will be.
It is estimated that you lose 1 FICO point for every percent of your credit limit that you use. So if you have a total credit limit of $20,000 and have an outstanding balance of $10,000 (50%), your score would be 50 points lower than if you had a $0 balance. Remember that if you can’t pay off your total balance in full, you should try to keep it below 30 percent of your total credit limit.

Don’t Charge Anything For At Least Two Months Before Applying For A Loan The payments that you made may take a few weeks or even a couple of months to get reported by the creditors to the credit bureaus. By not charging at least 60 days before, it’s more likely that all the payments you’ve made to date will be seen in your credit score by the time a lender requests it. Remember the first don’t –  limit your overall balance as a percent of your total credit limit.

Don’t Miss A Payment – You should always pay your bill in full and mail it as soon as you receive the statement or at the very least the minimum amount due.

Don’t Own Just A Few Credit Accounts – Consider opening another credit-card account or two, or taking out a car loan or small bank loan. Lenders ideally like to see a potential borrower responsibly managing a mix of revolving debt.

Don’t Apply For a Lot of Loans and Credit Cards in a Short Period -Lenders don’t like to see a borrower who’s gone on a credit spree, applying for a lot of new accounts or loans in a short period of time.

Don’t Close Unused Accounts – Closing any unused accounts will greatly increase your debt to credit limit ratio. Remember the first don’t – try to keep your balance below 30% of your total credit limit. For example, assuming that you have three credit cards, which have credit limits of $10,000 each but one of them is unused and you owe $10,000 total balance on the other two cards, closing the unused credit card would increase your total debt to credit limit ratio from 30% ($10,000/$30,000) to 50% ($10,000/$20,000)

Don’t Be Too Unconcerned About Your Credit –  You should always check your credit report and FICO score for any incorrect information posted by the creditors. Also, checking this would allow you to catch any identity thieves. Keep in mind that you can get a free copy of your credit report per year fromannualcreditreport.

FICO Pie Chart

Source: CNN Money 6 Ways To Kill Your Credit Score

4 thoughts on “7 Don’ts to Improve Your Credit Score”

  1. Pingback:   My Three Major Debts by FILAM Personal Finance

  2. Denver Mortgage Broker

    Don’t transfer all of your balances to one credit card. That will make you look “maxed out” to the credit scoring system. Try to keep your total credit card balances below 30% of limits and below 50% for any individual card.

  3. A very useful post… well, it always seemed to me that keeping one or two long-term credit lines (not more preferably) is quite favorable for banks… someone hold 10 credit cards, three of these, say, grant 7% discount on the first purchase, and after these first purchases the plastics are not so useful anymore, so the owner just cancels them… and what then? something that you are talking about.

    belly

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