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Credit Card Debt
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Spring cleaning for your credit
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(ARA) - Spring is a time of renewal and rejuvenation, when many people focus on getting their homes cleaned up and ready for the warmer months ahead. It is also a great time to get your finances - including your credit - in order. So, if you've been neglecting your credit like those old dusty boxes of clothes you can't quite part with yet, use the spirit of spring cleaning to spruce up your finances.
Experian has developed four tips to help you spring clean your credit:
1. Know your report and your score
Despite what you may have heard, accessing your own credit report does not affect your credit scores. Reviewing a credit report results in what is called a "soft pull," or "soft inquiry," meaning it will only be seen on a personal credit report, not the ones lenders use. Everyone should check their reports at least annually. It's part of good credit management. You can get your credit report at www.experian.com. Purchasing a scored report will help you identify the factors in your report that are most influencing your credit risk.
2. Pay your bills on time
Paying your bills on time is the single most important contributor to a good credit score. If a bill is not paid in a timely manner, the delinquent payment may be reported as late to a credit bureau. Delinquent payments and collections can have a major negative impact on credit scores. Even if the debt you owe is a small amount, it is crucial that you make payments on time. In addition, you should minimize outstanding debt, avoid overextending yourself and refrain from applying for credit needlessly.
3. Start paying off your credit card debt and leave the account open
Paying down debts and paying off credit cards is always good for your credit, but closing a credit account could have a negative impact on your credit scores, at least for a short time. Some people start with their smallest debt. They can pay it off fairly quickly, which gives them a sense of accomplishment. That payment amount can then be added to the payments for a larger debt so that it can be paid off more quickly. Others start with a large debt and get it out of the way. Getting a big weight off your shoulders can help knock out the remaining debts faster. If one debt has a higher finance charge, it is always smart to pay the most toward the balance of that account. That's because so much of your money is going toward fees and interest and is not lowering the amount of the debt. When it is paid off, all the money you were paying in interest can be applied to the balance of another account.
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4. Use credit wisely
Once you've paid down your debts, continue to use your credit cards and pay the bills on time each month, and keep your balances low. Credit scoring systems not only look at individual credit card balances, they also consider something called your utilization rate (or balance to credit limit ratio). Your utilization rate is the total of the balances on all of your credit cards compared to the total of the credit limits on all of your credit cards. For example, if your credit card's limit is $10,000 and you owe $2,500 - your credit utilization rate is 25 percent. According to Experian, consumers on average are utilizing more of their available credit. At the end of 2009, the average utilization was 22.1 percent compared to the same time last year when average utilization was at 19.1 percent. Closing accounts reduces your available credit, which can increase your utilization ratio or balance-to-limit ratio - a sign of risk that can negatively impact credit scores.
While there is no quick fix for bad credit scores, there are straightforward steps we can all take to help clean up and improve our financial well-being. So when you're clearing out the clutter in your living room, don't forget to review your finances and see what else you can do to get organized for the spring season. For answers to other financial questions and more information about Experian, visit www.experian.com/crediteducation.
Courtesy of ARAcontent
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