Wednesday, July 1, 2015 / by Ken Couture
Unfortunately, with the shape of the current economy, many individuals and families have found themselves in debt. It can be difficult or even impossible to resist the temptation of over-using credit when in a financial bind. The end result is that thousands of Americans are currently in possession of a less-than-terrific credit score.
Pay for 10 % of Your Monthly Budget With Credit
Simply having credit isn’t enough. You need to use your credit effectively in order to improve your score--this is called credit utilization. One easy way to do this is by using credit to pay for 10 percent of your monthly budget each month. It doesn’t matter what you buy. Even if it’s just part of your grocery or gas bill, you can charge it to your card and then immediately pay it off. This shows creditors that you can be trusted to pay off your debts quickly, reducing their risk in lending to you.
Don’t Close Out Old Accounts
If you’re cutting back on spending in an attempt to get yourself out of debt and correct your credit, you may be considering closing out old cards. This isn’t always the wisest decision. Because older credit accounts have more power in changing your score, it may be a better decision to pay them off and simply maintain the account by using it infrequently.
Open at Least Two Forms of Credit
While credit cards are very useful, it’s also ideal to use at least two different forms of credit. Having a small line of credit with your bank in addition to a Visa is a great way to do this. Each should be used sparingly to make small purchases, ensuring that it is registered as active--but isn’t racking up more debt for you.
Take Action on Old Debt Quickly
If you do find yourself in a position where you are in debt, it’s important that you acknowledge and take action on the issue. Even if this means calling in and attempting to negotiate or make arrangements. Showing a willingness to resolve the issue is better than skipping out or avoiding addressing it entirely.
Ask for Limit Increases Yearly
After successfully maintaining your credit accounts responsibly for at least a year, your score is likely to rise enough to give you the option of accessing additional credit. While most companies will offer this to you, this isn’t always the case. Either way, you should request limit increases whenever possible--being granted one can add precious points to your credit score. It shows that creditors have judged you as trustworthy, and capable of using credit responsibly.