Best ways to increase your credit score
It used to be that “people” made decisions about your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Those days are long gone, and now a single number – your FICO score – determines your credit worthiness.
Several credit models can be used for this article, however we are going to focus on the Fair, Isaac Company model. Better known as FICO.
Your FICO credit score can be used to determine your interest rate and how much credit a lender will give you. So taking care of your score, and keeping your credit clean will save you money.
Keeping your credit history in good order and improving your rating is not a hard thing to do…but it will take time. Here are a few ideas how to do just that.
FIRST: You need to get a copy of your credit history
You may not have a credit history for several reasons. Maybe you?re a student, maybe you pay all your bills with cash, maybe you have never needed a loan for anything. All this will have an effect on your history.
An easy way to improve your credit history is to get a loan and pay it off onetime. A loan such as a car loan (also known as an installment loan) is generally looked at as more important, and given more value, then a credit card loan.
A second idea is to take a sum of money, let?s say $1000, and put it in to a 6 month CD at a bank or credit union. Then you in turn go and get an installment loan against the first CD as collateral. The final part of this step is to take your new loan and repeat the process 2 more times at a different bank each time.
Let the CD’s mature, paying only the minimum for the 6 months. Once they mature you cash them out and pay off all three loans. Congratulations…you now have a credit history.
SECOND: Maintain Your Good Credit History
Good job – you have paid your bills on time, and do not have high credit card debt. Here’s some ideas to keep your FICO score as high as possible.
You don?t need to close old accounts. (Unless you?re being charged a fee to keep the account open.) Part of the FICO formula is based on the amount of credit available vs. how much you have used.
Here is a thing to think about. Paying off your credit cards every month is good money management, but you may be able to improve in this area. Here’s the scenario: you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here’s what happens – your credit card company reports your credit information monthly to FICO. If they report it before you pay off your card, it looks like you carry a balance on your credit card every month. You may find your FICO score improves if you pay off your credit card at a different time of the month.
THIRD: Repair Your Poor Credit History
At some point there is a very good chance you will have something that causes your credit rating to drop. Don’t panic…poor credit can be fixed. Understand however that the process takes time. In some cases you may need to talk to a credit counselor to assure you address the reasons for the drop as well as remove any future habits that may cause it to drop again.
The most heavily weighted part of your score is based on your payment history. The first thing to do to start repairing your credit history is to pay your bills on time. The mortgage is the most important, followed by installment loans, and finally credit cards.
The next largest portion of your FICO score is based on how you use credit. The fastest way to improve this is to pay down your credit cards.
At the end of all this, make sure you review your credit report. Get one report from all three credit agencies. Read every page. (I know it reads like stereo instructions in Greek) Look at the entries and call and contact the creditors to have them remove any errors.
Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score. Before making any drastic changes to your finances, consult with a financial advisor.
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This post is full of information about Credit History. Thanks for sharing.