How to Fix Your Credit Score

Your credit score plays a very important role in determining how easy it is for you to get loans and how attractive the loan terms are. Any lender you approach will refer to your credit report to gauge how much of a risk you are and how likely you are to pay off his loan on time.

This risk level determines the rate of interest, the term and other aspects of the loan he gives to you. Having a good credit score ensures that you are in a strong bargaining position to get cheap loans with attractive terms. There are no effective quick fixes to improve your credit score but it is possible to make a significant difference in a short time by taking the right steps.

Understanding the Basics

Before you start working towards improving your credit score, it is important to understand how your outstanding debt and available credit affect it. The ratio of debt to available credit (or debt to credit ratio) plays a very important role in determining your credit score. A high debt to credit ratio shows that you have used up almost all of your available credit and have many debts to pay off. This results in lowering your credit score. A lender views such a person as a high risk and will hike the interest charged on his loan so that the return matches the increased risk.

Repay Long Standing Debts

By repaying some of your larger, long standing debts you can make a great deal of difference to your credit scores. If you are going to need a loan soon then you can even consider liquidating some low return investments to repay some larger debts that you have left unpaid for long. Remember that an improved credit score can reduce the interest rates that will be charged on your future loan. This means that by paying back old loans, you stand to gain on a recurring basis by paying lower monthly installments on your loan.

Stay Current with Your Bills

Maintaining timely payments on all bills is also an easy and good way to ensure that your credit score improves and stays that way. Staying current with your bills shows that you have a structured repayment program to fulfill all your obligations. This, in turn, tells lenders that you are responsible about repaying your debts.

Use Credit Cards Wisely

Uncontrolled use of credit card is the most common cause of mounting debt. It is best to have just one or two cards that you use only for emergencies. Avoid using plastic on your shopping trips. If you have huge unpaid balances on some cards and available credit on others, pay off the ones with enormous dues and cancel them. Using cards on which you have a low debt to credit ratio reflects positively on your credit score.


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