Personal Finance

Three Fast Fixes to a Low Credit Score

| by PhilipTirone

Buying a new car, negotiating credit card rates, or applying for a job—these are all reasons you might need to boost your low credit score. If your score is too low, you might be refused a loan, assigned a high interest rate, or even turned down for a job. And some landlords might close the doors on rentals to people with low credit scores.

Here are three strategies to raise your low credit score, and fast!

1. Find creative ways to lower your utilization rates. Your utilization rate is the balance you have on each individual credit card expressed as a percentage of the limit. If your limit is $4,000 and your balance is $2,000, your utilization rate is 50 percent. If your balance decreases to $1,000, your utilization rate drops to 25 percent.

The credit-scoring bureaus respond best to people with utilization rates below 30 percent. If you have a high utilization rate, your low credit score can start to improve by getting your utilization rate below 30 percent.

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Obviously, you can lower your utilization rate by paying down your balance. You can also lower your utilization rate by transferring a portion of your credit card balances to credit cards with higher limits, or asking your credit card companies to increase your limits.

If you have fewer than five credit cards (the maximum number you should have), you could also open a new credit card that holds some of your debt.

Keep in mind that opening a new credit card will cause your score to drop initially, but so long as you keep the balance below 30 percent and make timely payments, your score will start to improve in about six months.

And if you are married, be sure to read my article about how to build credit fast by transferring balances to your spouse’s credit cards.

2. Become an authorized user on a family member’s credit card. If you have fewer than five credit cards, adding your name as an authorized user is a great strategy for quickly improving your credit score. Authorized users are allowed to use credit cards but have no contractual obligation to pay the bills.

For this reason, a person does not need to have a high credit score to qualify for authorized user status on a credit card. However, the credit card’s history will often be reported on the authorized user’s credit report, so long as the authorized user is related to the account holder. 

Therefore, becoming an authorized user on a family member’s credit card is one of the quickest ways to improve a credit score. This allows you to “borrow” the account holder’s clean credit history, which will cause your low credit score to quickly increase.

3. Correct your credit limits. Almost half of Americans have a credit card with a limit that is being incorrectly reported to the credit bureaus. Credit card companies often omit or misreport credit card limits to the credit-scoring bureaus. This causes your utilization rate to appear higher than it actually is. Imagine that you have a $300 balance on a credit card with a limit of $1000. Your utilization rate is 30 percent. Good news for your credit score, right?

Not so fast. If the credit card company is only reporting a $500 limit, you will appear to be carrying a 60 percent utilization rate. And this hurts your credit score.

Are you one of the many Americans suffering from this mistake?  Find out by pulling your credit report from www.720ficoscore.com. If the credit card companies are inaccurately reporting any credit limit of yours, immediately begin the process of correcting this mistake by using the forms and worksheets necessary to correct this mistake.

Philip Tirone is the author of 7 Steps to a 720 Credit Score, which reveals insider strategies for increasing a low credit score.