September 25th, 2010 10:21 EST
Top 3 Cures for a Low Credit Score
A low credit score is bad news, particularly if you are trying to renegotiate the terms of a loan, applying for a home loan, trying to land a job, or searching for an apartment. In today`s environment, you need a high credit score for a slew of reasons. But if you have a low credit score, don`t worry. Here are three strategies to boost your low credit score, and fast!
1. Correct your credit limits. Almost half of Americans have a credit card with a limit that is incorrectly reported to the credit bureaus. Credit card companies often omit or misreport credit card limits to the credit-scoring bureaus.
This causes your utilization rate (your balance expressed as a percentage of your limit) to appear higher than it actually is. Imagine that pay your Visa balance down to $300. Because your limit is $1,000, your utilization rate is 30 percent, which is the maximum utilization rate the credit-scoring bureaus want you to have.
So your score should increase, right? Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate. And this hurts your credit score.
Are you one of the many Americans suffering from this mistake? Find out by pulling your credit report from www.720FicoScore.com. If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake by using the forms and worksheets necessary to correct this mistake.
2. Become an authorized user on a credit card owned by a family member or spouse. If you have fewer than five credit cards, becoming an authorized user on a family member`s credit card is one of the quickest ways to improve a credit score, so long as you choose an account with a clean credit history. Becoming an authorized user allows you to borrow the account holder`s clean credit history, which will cause your low credit score to quickly increase.
3. Find creative ways to lower your utilization rates. Your utilization rate is the balance you have on each individual credit card expressed as a percentage of the limit. If your limit is $4,000 and your balance is $2,000, your utilization rate is 50 percent. If your balance decreases to $1,000, your utilization rate drops to 25 percent.
The credit-scoring bureaus respond best to people with utilization rates below 30 percent. If you have a high utilization rate, your low credit score can start to improve by getting your utilization rate below 30 percent.
Obviously, you can lower your utilization rate by paying down your balance. You can also lower your utilization rate by transferring a portion of your credit card balances to credit cards with higher limits, or asking your credit card companies to increase your limits.
If you have fewer than five credit cards (the maximum number you should have), you could also open a new credit card that holds some of your debt. Keep in mind that opening a new credit card will cause your score to drop initially, but so long as you keep the balance below 30 percent and make timely payments, your score will start to improve in about six months.
And if you are married, be sure to read my article about how to build credit fast by transferring balances to your spouse`s credit cards.
Philip Tirone is the author of 7 Steps to a 720 Credit Score, which reveals insider strategies for increasing a low credit score.