A credit profile, along with a credit score determines your eligibility for a loan. And in order to qualify for all types of loans, you need to build a good profile. You may have considered consulting a professional if your credit profile is quite low, but before putting in more money, fix your basics.

Why Your Credit Score is Low

You may probably be aware of the issue that your credit score is low, which is why you are trying to fix it, so the root of the problem is solved, i.e. accepting that there is a problem.

Now find out the reason behind it. Start by analyzing you credit report. And look for any kind of errors or misinformation.

How To Read a Credit Report

The major items are typically listed first on a credit report. You’ll find tax liens, bankruptcies, and judgments first, followed by charge-offs and collections, then any other less severe derogatory accounts.

Go through all of these items and find out whether they are legitimate or not. Once you’ve analyzed what should be there and what shouldn’t, it’s time to start tackling the problem.

Identify any accounts showing as derogatory that you feel are reporting in error. Once you’ve gathered a list, make a note of these and put them off to the side.

Remove Negative Items from Credit History

It is not possible to remove every negative thing from your credit history. A bankruptcy, foreclosure, or tax lien may stay on your credit report for years, if you can’t prove it was reported in error.

If that’s the case, just let it be and move on to other areas of your credit.

Pay off Existing High Credit Balances

If you have bad credit, then most probably, you will also have some accounts with large amounts of debt. So, try your best to pay down any large balances to levels below 50% of the total credit line, instead of applying for more credit.

This will increase your overall available credit percentage and amount, and thus enhance your credit score.

Maintain Existing Accounts

You should work hard to maintain any credit accounts that you still have open. They may have a lot of late payments, but if you are able to recover these accounts, you won’t need to worry about filling out a new credit card application. This is especially important if your credit is so bad that new credit isn’t even an option for you.

Apply for a Secured Credit Card

If you don’t have any other option, then consider applying for a secured credit card to rebuild your profile. This will require an associated savings account, which will act as the collateral for the credit card. Make sure to make timely payments in order to gain the creditor’s trust.

Rebuilding your credit will take time and effort. Be patient and work hard by focusing on your goal. Once you are able to get back on track, you will be able to avail all the offers that are given by creditors, such as auto loans and mortgages.

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A credit score, together with credit history, determines whether you are eligible for a loan or not. If you successfully maintain a high credit score, you’ll be allowed to have the best credit cards, the lowest interest rates, and you won’t face any difficulty while finding financing for large purchases such as auto loans or home mortgages.

Most of the people are always worried about their credit score, and are constantly looking for ways to increase their score. Although it’s not really important to have a perfect score, or a credit score over 800, it is important to maintain a good score for several reasons.

But the question is that how do you raise your credit score and maintain it? There are many practical and simple ways to attain a high credit score. But you have to work hard in order to achieve your goal.

Pay on Time

In order to achieve a high credit score, you should pay all your bills on time. Late payment are not allowed, if you want to raise your score. Try to make your payments on time and see your credit score rise.

Increase your Available Credit

Although most people don’t know about this, but you can also raise your credit score by increasing your available credit limits. You can ask your creditor to increase your credit limit, while spending the same amount. This will leave quite some credit unused and will give a good impression.

The more available credit you have, the higher your credit score will be. Any bank or creditor would be more willing to lend to someone with more room to spend than someone who is nearly maxed out on their existing cards.

But do remember that credit limits can’t be increased until you have been using your card for at least 6 months, and your credit score may temporarily drop as a result of the new credit request, so don’t try this if you’re attempting to raise your credit score in a short period of time.

Pay Down Debt

By paying off your debt, you can increase your score. Try to keep your debts low, but your credit cards open and active. By increasing your available credit, you become trustworthy for creditors.

Closing your credit card accounts might cause your credit score to drop as lesser credit limit will then be available to you. So always keep credit cards open and active, when you are trying to increase the score.

It Takes Time

Credit score alone is not enough for you to become eligible for any kind of loan. Credit depth and history play an equally important role. In order to build credit history, you have to keep your cards open for a long period of time, whereas multiple cards or loans provide depth.

In order to build a good credit score, you have to follow the above mentioned steps diligently and with patience until you are able to succeed. You should also view your credit report, from time to time to find any mistakes and if you do, report them to the credit bureaus immediately. An error on the credit report can also harm your score.

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If you are not using your credit card any more, you may want to get rid of it. Or maybe you’ve got spending habits that are out of control and you just want to pay off the credit card and close the account. You have already cut up the card, might as well close the account too, right?

Canceling your credit card

When you have made your decision, you call the credit card company, to ask the customer service representative to cancel the credit card. He may transfer you to the appropriate department, where you speak with a specialist regarding the closure of your card.

They ask a few questions regarding the reason why you are closing the account, were there any problems, etc. You simply tell them the reason and after throwing some special offers your way, they finally concede and tell you the closure request has been processed and should be noted on your credit report within 30 days.

Implications of canceling your credit card

Although you may have made the decision keeping some points in view, But it’s extremely important to understand the implications of canceling your credit card before you go through with it.

Your credit score may drop

First of all, remember that your credit score will most likely drop as a result of canceling the credit card, in case you plan on applying for any new credit shortly after or during the time of credit card closure.

By canceling your credit card, you have essentially cut out whatever amount of available credit that the canceled credit card was contributing to your credit profile. For example, if your credit card had a credit limit of $10,000, you will now have $10,000 less that before. This reduces your borrowing power, and drops your credit score, at least for some time.

Your credit depth will be affected

Moreover, if you have had the card for a long time, you’ll be killing your credit depth by canceling it, as it may have several years of positive history associated with it.

Keep in mind that most lenders want at least three lines of credit with two-year history on each. Thus, if you only have new credit cards, you may face quite some trouble when you apply for a car lease or a mortgage in the future.

Creditor can charge a penalty if you have outstanding balance

Be very sure that you really want to cancel the card, before you tell any of the credit card representatives about your intentions, because the creditor can charge you a penalty or raise your interest rate to the maximum available, in case you have any outstanding balance on your card.

But if you don’t have any balance, the opposite will work for you. The credit card company might throw great offers at you, such as lower APRs, better rewards, card upgrades and more, just to keep you as a client!

Ask for the representative name and keep the confirmation number

Remember to ask the name of the representative you speak to and note down any confirmation numbers they give you. Many creditors don’t cancel credit cards for members, and continue to send new credit cards. It’s just another way sleazy credit card companies keep their business going strong. 

Also note that the credit cards can generally be reactivated within six months of cancellation.

Conclusion

Keeping credit cards open is generally recommended, if they’ve got decent lines of credit, charge zero fees, contain lengthy clean payment history, and don’t have outstanding balances resulting in finance charges.

However, if you’ve got too many cards which are not being used, then it is better to cancel some as sometimes, too many credit cards can lower your credit score and increase the chances of identity theft.

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