Help with a Credit Profile

The average American had a credit score of 692 in January 2011, with some areas of the country having average scores in the 670s, according to the Experian National Score Index. You need a score higher than the average to get a loan at the lowest rate. Most consumers can improve their credit profile on their own, but counseling could help. Just watch out for scams.

Who Can Help?

When debt becomes unmanageable or you cannot fix your credit on your own, consider going to a credit counselor from the National Foundation for Credit Counseling (see Resources). Do not expect a credit counselor to solve your financial woes. One-third of participants in a NFCC program only need one session to get back on track, one-third have problems beyond repair and one-third enter a long-term debt management program, but 45 percent of these people eventually drop out, according to MSN Money Central.

Credit Repair Scams

Debt negotiators sometimes lie or exaggerate how much they can help. They might advise people to stop paying bills to force creditors into negotiation. Going into default, however, could incur extra finance charges and fees and double or triple a person's outstanding debt. Also, creditors are not required to settle debt, but they usually report settled accounts to the credit rating agencies, which can destroy your credit as much as a bankruptcy. Not all debt settlement companies are bogus, but the Federal Trade Commission warns consumers to watch out for those that guarantee a settlement and/or want large monthly fees and percent of the money you save.

Do It Yourself

Credit counselors cannot offer information not already available for free. Start improving your credit profile immediately by paying bills when due. Automatic bill paying from your bank can help with this. Lower your debt obligations, starting with revolving credit card debt. Alternatively, you need to use some credit card debt for lenders to report to the credit bureaus, but use less than 30 percent of your limit. Review your report for any errors, such as accounts with an incorrect limit or negative items older than seven years that are not a bankruptcy.

Tip

Paying off an debt account in full is not always the wisest idea for a credit score. Installment loans "disappear" from a credit report once you pay them off and reduce the variety of loans you own. Credit card companies often reject applicants who pay off their balance in full every month, because the companies make no money on interest and it usually ends up costing the company in kickbacks.