It shouldn’t be a secret to anyone that low interest credit cards are typically reserved for people who have excellent credit scores, but if you’re like most Americans you have a bittersweet relationship with your credit history. While this may prevent you from getting the low interest rate you want in the short term, there are certainly a number of things you can do in the long term (6 to 12 months) that will significantly increase your chances of qualifying for a low interest card in the future. This blog entry will discuss more details about your credit score, what trends creditors look for on your credit report, and what you can do to improve both of these indicators just by making a couple of changes in the way you handle your income.
There is no quick fix for people with less than perfect credit scores, so don’t let anyone tell you otherwise! Fixing your credit is a long process that requires mastery of your budget and a lot of self control – only then can you realize the low interest rates and excellent rewards programs that are available to people with above-average credit.
Credit Scores Defined
Have you ever wonder asked yourself any of these questions:
- What is a good credit score?
- What is an excellent credit score?
- What is a fair credit score?
For the purposes of this entry, let’s enumerate what these and other descriptors for certain credit ratings mean:
Low interest credit cards are most easily issued to people with above average / good credit scores, or in this case people with a 700+ score according to the chart above. People with a credit rating greater than 700 pose a low level of risk to credit companies and will obtain credit cards more readily. If that’s not you, keep reading – we’ve got some tips to help you get your credit where it needs to be!
How to Raise Your Credit Score
Your credit score is based off your credit history, so you need to establish a long listing of good credit practices in order for the bureaus to lift your score. This can take anywhere between 6 to 12 months to see a significant change in your score; the credit bureaus do this to ensure that any short term changes you make aren’t just you trying to temporarily raise your score (they’ve gotten wise to many tricks over the years!)
When credit companies render a decision about your credit, they look at four basic types of entries on your credit report:
Your Payment History
- Make payments on time.
This is perhaps the most sensitive area of your credit score and is most definitely the most easily impacted by your behavior. Missed payments and/or frequently late payments can have a devastating impact on your credit score.
- If you have missed payments before, get your account current.
History is the lesson here – the more often you pay your bills on time without interruption, the better your credit score will be.
- Collection accounts / overdue debt will remain for 7 years.
If you had an account in collections or had a massive overdue debt, getting this paid off is helpful but it will remain on your credit report for seven years. Some companies can help you remove negative items from your credit report faster than that for a small fee.
How Much You Owe Creditors
- Keep your credit card balances low.
Large amounts of debt on any one account (excepting naturally large accounts such as mortgages and student loans) will adversely impact your credit score.
- Don’t move your debt around (pay it off instead.)
This is the easiest thing to do to help in this category. Many people are tempted to take advantage of no interest balance transfer credit card deals (read more about balance transfers) to avoid paying down their debt, and while they may not be accumulating interest they are most certainly lowering their credit score.
- Closing down accounts / credit cards is not the answer.
Closing credit accounts in any form may do more harm than good, since a part of your score is determined by how much credit is available to you that you aren’t using. Closing accounts lowers this ratio and, in turn, your credit score.
How Often are You Applying for New Credit
- When shopping for credit, focus your efforts during a specific window of time.
Frequent credit inquiries over a long period of time make you look desperate for credit and will lower a bank’s confidence in your score. Smaller bursts of credit inquires in a short period of time are often grouped together and are viewed as one inquiry instead of several.
- Re-build your history.
Opening new lines of credit in the form of credit cards, second mortgages, auto loans, etc. is a good way to show that you can handle credit over the long term. Start small and work toward a goal you have set in your mind (i.e. get a credit card today to build credit that will qualify you for a boat loan next year.)
How Much Credit History You Have
- Do not open many accounts in a short period of time.
This is especially important if you have limited credit history. Opening many accounts quickly poses a significant risk to banks that might offer you credit in the future, so try to do this in moderation.
Now What?
Unfortunately you just need to wait and see what putting these tips into action will do for your credit report. It’s a good idea to get a copy of your credit report now for comparison purposes and then check back once every few months to monitor your progress. Some credit report websites offer a credit report monitoring service that will keep you updated with this information automatically – all you need to do is wait until you reach your target credit score.
Why is Improving My Credit Score Important?
Low credit scores allow you to more with your credit for less interest expense. Because this is a credit card site, let’s talk about what it means from a credit card perspective:
- Qualify for lower interest rates
Higher credit scores mean lower interest rates, so you spend less money lining the bank’s pockets and more on your own purchases.
- Better rewards with fewer restrictions
The best credit card rewards programs are available to people with excellent credit scores, since a company wants to do everything they can to make sure you aren’t motivated to switch credit card programs.
- Eligible for larger loans
Better credit scores will give you access to larger loans that would not have been available to you previously. This is especially important if you’re looking for a business credit card, since your personal credit rating will impact your company’s ability to borrow if you are one of the signatories on their accounts.
Additional Resources:
Kimberly Carte
Team Your Credit Network