Consumer Comeback Blog

Poor Credit Scores Make Better Consumers

While it’s true that the recent economic crisis and recession have had a pretty detrimental effect on our society and on many individuals, it’s important to recognize that there is some good that can come out of it in the long run. For example, with credit scores becoming even more important than they were before and with more folks finding their credit scores dropping, it’s also spurred more people to be concerned about their credit scores and become better consumers.

For example, people are not as willing to take on loans that they can’t afford as they were just a few years ago. People are more likely to pay off their credit card debt at the end of each month, too. Some studies suggest that people are saving more money overall.

In some ways, these changes come a bit late. Some people, who have had wonderful credit scores for decades, find that losing a job in the middle of a recession can mean suddenly destroying that credit score. Those same folks, then, wind up taking years to get their credit back up.

So, how are they doing it? There are a few basic principles you need to follow to become a better consumer and to get that credit score where you want it to be:

  • Pay your bills on time. This is the most important factor in your credit score. If you’ve got late payments, your score is going to drop and your credit history is going to suffer.
  • Reduce your outstanding debt. The next most important factor in your credit score is the ratio of your debt to the amount of credit you have. This is known as your “utilization rate.” The object is to use less of the available credit that you have. Don’t max your credit cards, or even come close to it.
  • Type of credit matters. Your credit score is affected by whether you have old credit or new credit. In fact, applying for new credit will usually drop your score a little bit, so don’t apply for new credit unless you really need it.