Your credit report can have a significant impact on your ability to gain credit, rent a home, get insurance and get a job. If your credit score is too low, it can affect your interest rates and the amount you pay for security deposits. Insurance companies may deny your application for insurance and a prospective employer may pass you over for employment if you have a low score. A large part of your credit score is the credit limit on your accounts. Your credit limit shows your credit utilization ratio, or the amount of credit you have for your various credit card and credit line accounts.
High Credit Utilization Ratio
If a lender sees most of your accounts at their limit, it may assume that you are not a good credit risk. Typically, when consumers are having difficulty meeting monthly debts, they may access available credit lines to help pay bills and buy necessities. Credit bureaus realize this and can lower your score even if you are paying on time.
Low Credit Utilization Ratio
Low utilization of available credit can adversely affect new credit offers as well. If a prospective lender looks at your report and sees numerous cards with low balances compared with your limits, the lender may decide you are a bad credit risk. Credit bureaus look at how many open accounts you have when calculating your score. If you have more credit available than you can pay back, lenders can consider you a bad credit risk, according to the University of Connecticut.
Look at Your Credit Report
Credit reports can contain inaccurate information. The Fair Credit Reporting Act enables consumers to request a free credit report from each of the three major bureaus once a year. Look at your credit limits and other information to be sure that your lenders are reporting your credit file correctly. If your report contains inaccurate information, you can file a dispute in writing with the credit bureau. The credit bureau will look into your claim and correct the error.
Improve Your Score
A high credit score is essential to receiving low-interest credit offers. Lowering your balances, paying bills on time and not having too many open accounts can, over time, increase your score. Although some companies advertise that they can raise your score, according to the Federal Trade Commission, many of them are frauds. A company may be fraudulent if it tells you to create a new credit identity, asks you to pay before it does anything or advises that you dispute accurate information.
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