by Terry Chartier

Created on: August 29, 2008

Credit scores are usually between 300 and 850. These scores indicate what kind of risk you pose to creditors. Your score is used to decide a number things whether to extend your credit, what kind of loan are you eligible for or even what kind of interest rate a lender may charge you. A high credit rating works in your favor, but what if you have a lower credit rating, how does this happen, what does that mean and what can you do to increase your credit rating.

Low credit scores between 300 and 500 indicate that you have less than stellar credit. There are some reasons why you might have a low credit score. Here are the top five: failing to make the minimum payment on time, passing over the bill, carrying a high balance, maxing out your card and fees tacked on through collection agencies.

Failing to make the minimum payment sends your score sliding down the credit scale instead of upward. Skipping the bill altogether is not a wise choice either. According to FICA published reports, skipping that bill could drop your score by 100 points. Carrying a high balance over from month to month can result in an enormous amount of interest. Maxing out your card altogether can send your score plummeting as well. And if in the end you are sent to a collection agency, get ready the agency might tack on fees. Collection agencies will rip through your credit rating leaving it damaged for some time.

Yes, you've failed to make the minimum payment, carried a high balance, maxed out your card and been sent to collections. You aren't alone! Over the years personal bankruptcy has surged and is tied to the number of consumers that have simply have not paid their bills on time and maxed out their cards. It doesn't help when gas prices are high and the job market has tanked. But there are several things you can do to improve your low credit rating.

Improving your credit rating takes time, the first step is to get a free copy of your credit report from all of the three major credit bureaus: Equifax, Experian and Transunion. Review the report for inconsistencies and send a credit letter to correct any errors you notice. The second step would be to pay your bills on time. Payment history is a good way to start improving your credit rating. Another solution would be to pay down the debt. The more you pay down the better your score. Talk to a credit counselor or debt consolidator. Ask for help and you shall receive, remember don't be afraid, the worst thing you could do is do nothing.

Keep in mind when carrying high debt in the future you might not be able to obtain a loan or even approved for other forms of credit. Lower credit scores won't help you secure a mortgage at a good rate. But if you take action to lower your debt and improve your credit standing your credit score will rise.

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