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Health & Fitness

Capacity is King

Improving your credit one step at a time.

, I talked about getting your free annual credit report and getting any incorrect information corrected as the first step.

Now that you have your credit report, another positive step in improving your credit is looking at each of your credit lines (credit cards, retail stores, etc.) and seeing what percentage of the available credit you have used. The lower the percentage you have used of your credit, the better your score will be. 

For example John Doe and Mary Smith each have $30,000 in lines of credit. Mary only owes $2,000 in total. John, on the other hand, has maxed out his credit cards and other lines — he owes $30,000. Which one would you rather lend to?  Obviously, Mary has a much better shot at managing new debt.

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If you have maxed out your credit, get a grip on your spending (or get a second job) and start paying down those lines. Put anything extra that you can manage onto your highest interest rate debt first. Windfalls — money from gifts, side jobs, bonuses, etc. — can all be used to lower your debt. If you get paid bi-weekly, pay half of your monthly bill with each paycheck. It will decrease your overall interest paid.

Don't close out your credit lines, especially the oldest ones. A credit card that you have had for 10 years carries more weight toward your good credit than one you have had 6 months. One exception to that rule is that if those lines are going to cost you (especially with the new fees many of the big banks are charging), you will have to evaluate taking the hit to your credit versus the cost of keeping the line.

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As I've said before, I'm not qualified as a financial counselor, but am just sharing what I've learned through my 30+ years in the financial services industry. If you feel that you have some serious credit problems, you may want to contact a professional counselor. There are many good ones out there that you don't have to pay for such as CCCS or Accel, which is free to Destinations Credit Union members.

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