Your credit score greatly influences your ability to qualify for loans and the APR of the loans that you do qualify for. By using the credit you currently have responsibly, you can help to improve your credit score. Additionally, you can take several corrective measures to get your credit score back on track.
One of the primary factors that affect your credit score is the amount of revolving credit you have available on your accounts. Generally, the more revolving credit available, the higher your credit score will be. Prepaid credit cards, however, do not affect your percentage of available revolving credit. Since closing credit card accounts will reduce your percentage of available credit, it is not a good idea to close credit card accounts if you want to improve your credit score.
Every time you apply for a new credit account, your credit report will list the application as a credit inquiry. Excessive inquiries will lower your credit score. Therefore, you should only apply for new credit accounts sparingly, to avoid damaging your credit score. Applying for prepaid credit cards does not count as a new inquiry on your credit report so this is a useful product to have if you need to buy things online but have a poor credit rating.
Making on time payments is the single most important factor to building and maintaining a good credit history and credit score. Always pay your credit accounts prior to the due date to avoid late payments. If you must pay your account late, pay the account prior to the 30th day after the account becomes past due. Creditors will not report late accounts to the credit bureau until after the account passes this 30-day threshold. Prepaid credit cards do not require you to make payments and therefore, do not affect your credit score.
Types of Credit
Credit bureaus also consider the types of credit you use when calculating your credit score. You want to establish a good balance between revolving accounts such as credit cards and instalment accounts such as mortgages and car loans. Avoid opening new credit accounts from finance companies, as these loans will generally have an adverse impact on your overall credit score.
Any negative information on your credit report will adversely affect your credit score. Negative information should only remain on your credit report for seven or 10 years, depending on the type of negative information. Periodically, request a free copy of your credit reports from the major credit bureaus.
Dispute any inaccurate or outdated negative information that appears on the credit report. By law, credit bureaus must investigate disputed information within 30 business days. Any disputed information that the credit bureau cannot confirm will automatically be deleted from the credit report. Many third party companies can assist you with removing inaccurate and outdated information from your credit report. However, it is not necessary to use the services of these third party companies to initiate a dispute.
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