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Improving Credit Scores

By Ruth Racey
Published: Friday, December 4th, 2009

Flattery can sometimes work when looking for a job. It, however, does not work on lenders and creditors. No matter how hard a borrower tries to sweet-talk banks and financial institutions, they will always look at the standard financial capability measure of a consumer – the credit score.

A credit score is essentially the summarized financial and credit history of an American consumer in numerical form. It ranges from 350 to 850, with most lenders and creditors preferring anything above 700. Credit scores allow banks to see how trustworthy an individual is when it comes to his or her financial obligations.

Credit scores are determined by a variety of factors, including the cardholder’s payment history, outstanding loans and balances, and purchasing habits. Together, these aspects of a consumer’s financial life can make or break any applications for loans or credit.

Maintaining a good credit rating is essential for any American to continue receiving the benefits of credit and other financing options. High credit scores please financial companies and can help convince them of an individual’s worth. For this reason, it is crucial to know how to improve and maintain credit scores.

One of the biggest factors the three credit bureaus, Experian, Equifax, and TransUnion take into account is the cardholder’s payment history. Any delayed payments can reflect negatively on credit records and eventually lead to point deductions from credit scores. Card companies typically allow a 30-day window for consumers to pay the minimum amount. Failure to do so automatically means being tagged as a high-risk client. Consumers must always keep in mind that banks and card issuers monitor all outstanding balances. Aside from the effect on the credit scores, delayed payments will also mean higher interest rates and penalties.

Many Americans also make the mistake of having several credit cards and not managing them properly. Credit scores are also partly computed by comparing the credit limits approved with the total amount paid. This ratio is then used to determine the deduction from the score. A lower debt-to-limit ratio means higher credit scores.

In a desperate attempt to escape financial responsibilities, many cardholders often resort to declaring bankruptcy. While it may provide some sort of relief, it is by no means without consequence. Card companies and lenders search for any signs of financial weakness in a consumer’s credit history. Delayed payments and bankruptcies automatically mean lower scores.

Consumers should also be careful about applying for new loans. Having too many loans simultaneously increases the risk of not having enough money to pay for them. In turn, this can affect credit scores significantly.

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