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In a Struggle for Credit Score

By Sally Maison
Published: Monday, September 7th, 2009

A couple of weeks after President Barack Obama signed the new credit card law, consumers find themselves on their heels trying to keep their credit scores intact. This makes some consumers feel that the new credit law has done them more bad than good.

In a Struggle for Credit ScoreIt seems that the new credit law took effect in a bad time. The country is not yet out of the economic crunch and the rise in home foreclosures and unemployment rate did not help at all. To make things worst, credit myths are becoming more popular with increasing number of consumers following them.

Many consumers believe that they can improve their credit score if they stop using their credit cards. However, finance experts say that consumers may not be getting what they hope for. Consumer Reports, a products and services magazine, says that cutting up on credit cards is a bad idea. Credit specialists comment that sudden decline in the credit activity of a consumer is viewed by creditors as a sign of financial instability. This makes a person more of a risk to a creditor and he may find it more difficult to apply for loan.

On the other end of the myth, some consumers believe that keeping a balance in their accounts is good for their credit score. But Fair Isaac Company (FICO) says that a third of a consumer’s credit score is determined by his debt to credit ratio. With the sudden cuts in credit limit, financial guru Erica Sandberg says that now may not be the best time to keep big balance on one’s credit card.

Credit specialists agree that consumers should still use their credit cards but on a minimal level. Consumers should back this up with prompt payments, not missing out even on those “cheap bills.” FICO reminds consumers that any bill that is worth a hundred dollars or more can hurt their credit score.

Meanwhile, loan experts advise consumers to ponder carefully before applying for loan. They say that consumers should apply for a loan only when their application has a good chance of being accepted. Consumers are also advised to avoid applying for loan when it is not extremely necessary. Recent credit applications account for 30% of one’s credit scores and consumers do not want to mess that up with rejected loan applications.

Despite their financial struggles, credit specialists encourage consumers to be more optimistic, and hope that the situation gets better as the credit law takes full effect next year.

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