Many people make the wrong assumptions about how to enhance credit rating and how to improve credit scores. Don’t believe that your assumptions are correct.
Poor Assumption #1: Lower maximum credit card limits improves my credit score.
Credit scoring programs don’t penalize you for having higher credit limits. However , they do penalize you for having high balance relative to your limits. The $2, 000 balance on a cards with a $2, 500 limit greatly reduces your credit score. However , if you raise the limit to $10, 000 on a single card, a higher credit score results because you look less “maxied out” on your credit cards. Moving that balance to a higher maximum limit card could also improve your score.
Bad Assumption #2: Always paying the minimum can lead to a good credit score.
Of course not spending the minimum will negatively have an effect on your credit score. However , paying that minimum amount will not usually result in a good rating either. The key issue is keeping your reported outstanding balance low relative to the maximum credit limit. Keeping your balance at less that 10% of the maximum limit is good. A balance over 50% of the maximum could significantly reduce your credit score.
Bad Assumption #3: Always paying by the due date will result in a good credit score.
Obviously paying late will reduce your credit score, but it takes more than timely payments to get a high credit rating. Why wait to get a document copy of a bill. Go on line three times a month, review your credit costs, and make on line payments. Hence you are never late. There is less chance of successful identity theft since you see the charges earlier, more often, so you can take corrective action earlier.
But most importantly the reported balance to credit reporting agencies is reduced. Exactly what normally gets reported to the credit reporting agencies is the balance on the paper expenses. Reducing this balance by paying out before the bill is generated will improve your debt ratio and your credit score.
Poor Assumption #4: Paying my expenses the day the mail delivers leads to a good credit score.
Waiting for the expenses in the mail and paying by check through the mail is very 1970. Snap-out-of-it grandma! If you get ten bills a month, that’s 120 possibilities per year for the post office to mis-deliver or for you to lose the costs. Plus another 120 chances for your return check to get lost in the mail, taken for identity thievery, or misdirected to the wrong account. Go on line to make your payments and get verified proof (a transaction confirmation number) that the payment was well-timed and correctly recorded to your account.
Poor Assumption #5: Closing old bank cards will improve my credit score.
Closing a classic account will only reduce the average regarding your credit, which will reduce your credit rating. Try to keep your older credit lines open. If you need to close some credit lines, do this on your newer credit lines.
Bad Supposition #6: Moving balances to a reduce interest rate card will improve my rating.
Interest rate and minimum payments are certainly not a factor in determining your credit score. Nevertheless , opening new accounts, to take benefit of a lower interest rate can be very detrimental for your credit score in three ways. Very first, a new credit line always reduces you credit score. This reduction can be extreme if you open more than one new accounts within six months. Second, a new line of credit normally requires a new credit query, which will also reduce your credit rating. Third, a new credit line will reduce the average age of your credit, which also reduces your credit rating.
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Be very cautious in opening new credit balances.
Bad Assumption #7: Shopping around to get the best interest rates will improve my score.
Credit scoring programs do not like changes. Multiple credit inquiries and opening new accounts will reduce your credit rating. Waiting six months between credit inquiries will improve your score. If you are shopping (lets say shopping for a car) try to finish all the similar credit inquiries (car dealership credit inquiries) within 14 days so that they may all be measured as one inquiry by the credit scoring programs. Do not allow people to get your ssn or to run a credit check unless you are usually serious and ready to buy. Too many queries could prevent you from having the credit to purchase.