Credit scores can be complicated business. Many people don’t know what their credit scores are until they are rejected for something. Some people are overly worried about their credit score and attempt to do whatever they can to improve it. The following are six strategies often thought to improve credit scores. But do they actually work?
Pay on a Zero Balance
According to a financial planner in Illinois, there are individuals out there who believe that sending payments to their card issuer even though they have a zero balance will help their credit score. The reasoning behind this strategy is that your credit score depends a lot on your debt utilization ration. The debt utilization ratio is the difference between the balance on your card and your card’s credit limit. The greater that difference is, the better your credit score is. So the thinking is that if you make payments on a balance that is zero, you will end up with a negative balance, increasing the difference between the balance and your credit limit. Unfortunately, this doesn’t work. Most credit card issuers will simply send those funds back to you.
Apply for More Credit Cards
The more credit you have, the better your credit score is, right? So why wouldn’t you apply for as many credit cards as possible in order to increase your credit? There’s one problem with this tactic: your credit score shows all the credit inquiries that are made. If there are too many inquiries, a red flag will be raised. However, this tactic does work over the long run, because you will have more credit. The only other possible drawback is that you can easily fall into debt if you have a lot of credit and don’t use it responsibly.
Use a Home Equity Line of Credit to Pay Down Cards
Some people think that if they have an outstanding debt on their credit cards, using a home equity line of credit, a second mortgage or a home equity loan to pay them off is a good idea. This really depends. If you do this, you’re not really paying off your debts, you’re simply moving them from one place to another. However, if you take out a new home equity loan or line of credit in order to pay off other debts it could improve your credit score. This is because you are increasing your available credit, which results in your utilization ratio being lowered. Remember that lenders can still look at the amount of debt you have in addition to your credit score, which can harm the ability you have to get additional credit.
Disputing All Debts
When you dispute a debt by sending a letter to the credit reporting agency, the debt will come off the credit report for 30 to 60 days, which is the time it takes for the credit card issuer to validate the dispute. You can do this even to a legitimate debt. What is the advantage of doing this? You have a window of time where you can apply for a loan in which the debt won’t appear on your credit report. Once the time is up, the debt will reappear, but you may have already secured your loan.
Make More Than One Payment a Month
Making an extra credit card payment every month is actually a legitimate strategy. Even if you tend to pay your entire balance every month, doing so in the middle of the month instead of towards the end will look like you’re not using as much credit as you actually are.
Become an Authorized User
Find someone that has an upstanding payment history to add you to his or her credit card as an authorized user. This can help your credit, but if the primary user suddenly has financial troubles, it can affect your credit score as well so be careful.
Some of these methods can help improve your credit score, although some are simply credit score improvement myths. The best way to improve your credit score is pay your bills on time and keep your balances low.