Many customers - particularly those who are planning to make a large purchase on credit, such as a home or a car - make it their top priorities in life to find ways to raise their credit. However, wanting to raise your credit score is a far cry from actually doing it, and doing it without putting yourself into further financial trouble. To boost your credit score the right way while staying on track financially, here are two practices that you should avoid.
1. Closing old accounts
When their accounts show a less than perfect payment history, many people assume that closing old accounts will raise their credit score. However, before you do this, keep in mind that in most cases, closing an account will have the opposite effect--it will likely lower your credit score instead of raising it. Here's why:
First, closing an old account will raise your credit utilization rate. Creditors and credit reporting agencies determine this rate by comparing the limits that you have on current credit lines to the ratio of revolving credit that you currently use. In determining your credit score, your credit utilization rate is a very important factor, second only to your payment history. The amount of credit you have at your disposal is directly affected by the status of your accounts. Your credit utilization rate will likely rise when you close off old ones and this could mean a decreased credit score.
Second, the length of time shown on your credit report that a line of credit has been open can be affected by the closing of an account. Because this length of time speaks to your stability and ability to maintain a credit account over time, lenders use this factor to determine whether you have been using credit wisely for a long time. Particularly if the account you are closing is an older one, doing so could seriously affect your credit score and your perceived credit worthiness.
2. Carrying a Balance
Many consumers feel that their credit score is positively affected whenever they carry a balance on their credit cards. This is absolutely false; in fact, the opposite is the better approach. Carrying minimal to zero balance on your credit accounts will not only raise your credit score by decreasing your credit utilization rate--it will also show lenders that you can be trusted with lines of credit without immediately using them to spend more than you should spend.
New You Credit Repair offers a variety of uniquely effective solutions to common financial problems. Once we review your financial situation, issues and goals, we will tell you which services we recommend for your specific situation, and where you should start. Call 866-403-0248 or go to http://www.newyoucreditrepair.com for more information.