Credit rating problems can be caused by various factors, from irresponsible spending to outright identity theft. Fixing your credit rating problems requires a certain amount of financial discipline and a willingness to take charge of your credit report. The sooner you can identify a problem in your credit report, the easier it is to start fixing it.
Inaccurate Credit Information
Inaccurate credit information can adversely affect your credit score. This can happen through simple error, such as a wrong account history added to your credit report, or through identity theft, where multiple fraudulent accounts are opened in your name. The Fair Credit Reporting Act, or FCRA, requires credit bureaus to make copies of your credit report available to you for free at least once a year. Credit bureaus are also required to investigate any errors you find on the report and take action to correct them.
The Importance of Low Credit Balances
According to MSN Money Central, a large portion of credit rating problems can come from accounts with high revolving balances. This means you're carrying a number of of maxed-out credit cards, making only the minimum payments and generating little headway in actually paying them down. This may be an indication to a potential lender that you're using your available credit irresponsibly, which cost you a home or car loan if the problem isn't fixed.
Fixing Your Credit Rating
Fixing credit rating problems can be as simple as reining in your spending and actively paying down your credit card balances. MSN Money Central states that paying down these revolving accounts can have a dramatic effect on your credit score --- more so than paying down installment-type loans such as a mortgage or car payment. If you use a credit card, make sure the charges are small amounts that you can pay off at the end of the month. This increases your available credit and the likelihood that a lender sees you as a low credit risk.
Credit Traps to Avoid
Opening a new credit card is also a way to reestablish your credit history and improve your credit rating problems, but there are traps to avoid. Secured credit cards are collateral-based credit accounts that require you to make a down payment on the account before opening it. The credit card company can also charge you fees, including monthly servicing fees and an expensive annual fee. Unless you have the available cash to pay the initial charges all at once, it's best to avoid these credit money pits and instead devote your dollars to paying down existing accounts.
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