Credit Tips – That Aren’t As Useful As You Thought

It seems like everyone has advice for how to improve your credit score. But it should go without saying that not all of this advice is good advice. In fact, some of the suggestions that people have are more likely to hurt than help your credit score. Needless to say, there’s a lot of misconception out there about the best ways to up your score. Here’s a look at some of those tips that you should stay away from:

Credit Tips that Aren’t as Useful as you Thought

Lower credit limits: Some people think that simply asking for a lower credit limit can help reduce debt. While that’s true, you must also keep in mind that part of your FICO score is based on how much you owe compared to your credit allotment. For a good credit score, you need to keep debt at or below 30 percent of your total allotment. But if you lower your credit limit to $3,000 and max it out, it won’t do your score any good.

• Pay off installment loans: Don’t focus too much on paying off installment loans early – it can actually drop your debt load – and possibly your available credit. Instead, focus on paying off credit cards.
• Open lots of credit cards: To get more of a credit allotment and increase utilization ratio, many people think that opening up several new credit cards at once is the answer. It’s not – it can actually hurt your credit score due to the multitude of inquiries for new cards.
• Settling debt: It’s always a good move to settle any outstanding debt with lenders, preferably for less than you owe. However, many people make the mistake of doing so and not ensuring that a written report is filed that states the debt was “paid in full.” Make sure all debts – even if they’re paid – aren’t listed as “settled.” It can hurt your score.
• Pre-paid debit cards can help build credit: They can’t – they have nothing to do with helping you build your credit score. A secured credit card, however, can. This works similar to a debit card.
• Never use your credit cards: Never using your credit cards can’t hurt your credit score, right? Wrong – part of your credit score is dependent upon credit history and knowing you’re making on-time payments, so you’ve got to use them. It’s better to charge small amounts and pay it off each month than to never use your credit cards.
• Credit repair firms are helpful: While this is true for some firms, it’s not true for others. That’s because while there are a lot of qualified and credible credit repair firms out there, there are arguably just as many unethical ones that may attempt to repair your credit via identity theft or some other illegal manner. Beware!