One way to improve a low credit score is to use what credit you do have responsibly. By obtaining an unsecured credit card, keeping your balance low and making your payments on time, you can significantly improve your credit score and improve your chances of getting more credit at better interest rates. Obtaining an unsecured credit card may be difficult if you have a low credit score, however.
Unsecured Credit Cards
An unsecured credit card is not backed by collateral, such as a savings account at the bank that issues the card. When you get an unsecured credit card, you don't have to put any money into a bank account. Instead, the credit card company relies on your promise to pay off the card's balance. The credit car company charges interest on any balance remaining on your card each month, and charges additional fees if you do not make the monthly minimum required payment. If you miss several payments, the credit card company may sue you to be able to seize any of your wages or assets to satisfy the debt.
Credit Limits
The credit limit on your credit cards is just that -- a limit on the amount of debt you can have on your credit card account. Because the credit is available doesn't mean you should use it all. If you use all or most of your available credit, your credit score will suffer, even if you regularly make your credit card payments on time. This is because your debt-to-credit ratio is one of the components used in determining a credit score. To improve your credit, you should keep the amount of debt on each card to under 30 percent of your available credit, according to the MSN Money website. To improve your score quickly, pay off your cards or keep your balances under 10 percent of your card limit. If your credit card has a low credit limit, which is not unusual in cards issued to those with bad or no credit, try to keep most of your credit available so your debt-to-credit ratio does not rise.
On-Time Payments
Establish a track record of paying your credit card bill on time each month. About 35 percent of your FICO credit score is based on your payment history, according to the MyFICO website, so the longer you maintain regular payments, the better your credit score will be. Many people find that using an automated bill payment service, which is offered by many banks, helps them avoid late payments.
Fees and Interest Rates
Credit card companies that issue cards to those with troubled credit often require extra fees and charge high interest rates to offset their risk. If you get one of these cards, expect to pay for the privilege, so you should keep your purchases to a minimum. Once you establish yourself as a safer credit risk, you can apply for a card with more favorable terms.
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