Unfortunately, a person with a bad credit score is often in this position because he or she lacks the discipline to pay their bills on time.
Of course, there are always exceptions when unforeseen circumstances come into play, such as health complications or loss of employment.
There are a few things that you can do to help bring your score up so that you can secure a loan or get a better interest rate on your mortgage.
Here are two examples to consider…
*Example 1: Distribute debt from revolving credit.
Our friend, Mr. Bigfoot, has a credit score of 650. He has five credit cards, but his Visa account is almost maxed out to the available limit. His other four credit cards have relatively low balances. Mr. Bigfoot strategically moves a part of the debt from his Visa account to the other major credit card accounts, thus distributing the debt more evenly over the five cards. This changes the ratio of debt to available credit (which if you read my earlier posts has a 30% impact on the overall credit score), and Mr. Bigfoot successfully raises his credit score by 20 points with very little effort.
*Example 2: Transfer outstanding balances to new accounts.
Our good friend, Mr. Bigfoot, has only two credit cards, but both are pushing the limit of available credit. Mr. Bigfoot opens two new credit card accounts, each with a credit limit of $5,000. He transfers part of his existing balances to the new accounts. While he has acquired two new cards that have no established history, the greater impact is the change in the ratio of debt to available credit.
CAUTION: Mr. Bigfoot should be very careful when attempting this method. He has two cards that are almost to their limit, and if he starts to apply for more credit he may be viewed as a risk because it will show that he needs more money.
Ultimately, experts say that it is best to have two to five credit cards, and no more than that. You should keep your balances as low as possible. If you have a credit account with a zero balance, do not close the account.
Instead, make a small purchase so the card shows up as an active account on your credit report, and you will be awarded points for your long-term credit history.
*These examples are purely hypothetical. Mr. Bigfoot is a friend of mine on Facebook, but he prefers Sasquatch.
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