Thread: Young and trying to improve low credit score

Paying down your balances on revolving credit lines (credit cards) will probably have the biggest, most immediate impact.

Hi Matt,

Really interesting thread. I'll try to offer some advice, but I'm not sure how useful it will be to you or other readers as my experience is from the UK market.

One method that young people in the UK use to increase their credit score is to take out a credit card and use it monthly, paying the balance off each month. The theory is that managing the credit responsibly can show prospective lenders that you are a good payer and therefore a good risk to lend to. This works really well for someone that has no credit history at all, meaning that there is little information on their credit report for a lender to base their decision on.

I fear that the danger of having multiple credit cards with unused available balances is that a lender cannot guarantee that you won't use the additional credit at a later date after they have lent you money, increasing the risk to them. This can make it difficult for them to decide what would be an affordable level of credit for them to lend you.

I would suggest trying to close some of the credit card accounts. If it's impossible to pay the ones with the smallest balances from your own savings, why not try to transfer the balances to one card, preferably the one offering the lowest interest rate, and then close the other cards? This way you will have only one credit card, less available credit, and one easier to manage payment.

Hope this helps!

I was in a similar situation when I graduated from university, what really saved me was speaking to a credit counselor.

I'd research credit counselling before going that direction. Check this out:

The Federal Trade Commission has filed lawsuits against several credit counseling agencies, and continues to urge caution in choosing a credit counseling agency. The FTC has received more than 8,000 complaints from consumers about credit counselors, many concerning high or hidden fees and the inability to opt out of so-called “voluntary” contributions. The Better Business Bureau also reports high complaint levels about credit counseling.

Another common criticism of credit counseling is the assertion that participating in a Debt Management Plan will ruin a consumer’s credit. Fair Isaac Corporation, the company that pioneered the use of credit scores, states that participation in a Debt Management Plan has no effect on a consumer's FICO credit score. However, the participation in such a plan may appear on consumer credit reports, and the client may have more difficulty obtaining a car or home loan and be denied any further unsecured credit, such as a credit card. This is because lenders often use multiple risk factors to determine creditworthiness.

Source is Wikipedia (I know, but it's got other references).

At the VERY LEAST, I'd check the BBB and anything else I could think of before hiring a particular credit counselor.

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