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CITYSunTimes Online Extra & Web Exclusives October 2011 | Read the full SECTION
CITY BUSINESS
Improving Your Credit Score
By Jason Alderman
Many people suffered blows to their credit scores during the unstable economy of the last few years, whether because they missed payments, exceeded credit limits or, more seriously, experienced a home foreclosure or even bankruptcy. Is this a big deal? Absolutely.
[Continued from October 2011 print issue - read more here.]
Never exceed individual credit limits. In fact, the lower your credit utilization ratio (the percentage of available credit you’re using), the better. Try to keep your overall utilization ratio – and ratios on individual cards and lines of credit – below 30 percent.
Even if you pay off your balance each month, showing a high utilization ratio at any time during the month could conceivably hurt your score.
A few suggestions:
- Spread purchases among multiple cards to keep individual balances lower.
- Make extra payments midway through billing cycles so your outstanding balances appear lower.
- Ask lenders to reinstate higher limits if your payment history has been solid.
Transferring balances to a new credit card to get a lower rate dings your credit score by a few points – although it won’t take long to recover. But, say you move a $2,000 balance from a card with a $10,000 limit to one with a $4,000 limit; you’ve immediately gone from a 20 percent utilization ratio to 50 percent on the new card.
A few other credit score-improvement tips:
- Make sure that credit card limits reported to credit bureaus are accurate.
- Don’t automatically close older, unused accounts; 15 percent of your score is based on credit history. In fact, occasionally make small charges on existing accounts to make sure lenders don’t close them out.
- Each time you open a new account there’s a slight impact on your score, so avoid doing so in the months before a major purchase like a home or car.
- Pay off medical bills and parking, traffic or library fines. Once old, unpaid bills go into collection, they can damage your credit.
There are many good resources for learning what you can do to repair and protect your credit scores, including the Credit Education Center at www.myfico.com/crediteducation; the Credits and Loans page at www.ftc.gov/bcp/menus/consumer/credit.shtm; and What’s My Score www.whatsmyscore.org, a financial literacy program run by Visa Inc.
Jason Alderman directs Visa’s financial education programs. To Follow Jason Alderman on Twitter.