How to raise credit scoresWe all know that a higher score means a lower interest rate and a better deal. Having a poor score feels like the lender has a gun to your head! However, the FICO formula is not a secret and there is no need to hire an expert or buy an expensive e-book in order to discover how to raise credit scores. Instead, welcome to How to Improve FICO Score 101. Our approach is to take the five areas of the FICO score and share with you the two hottest tips for improving your FICO score in each area. Instead, welcome to How to Improve FICO Score 101. Our approach is to take the five areas of the FICO score and share with you the two hottest tips for improving your FICO score in each area. As we saw in Average FICO score, there are five areas that go to make up your score, and they are weighted differently - some areas are more important than others and have a bigger effect on hurting or improving your FICO score:
2. Amounts Owed = 30% 3. Length of Credit History = 15% 4. New Credit = 10% 5. Types of Credit Used = 10% So, the 10 best things you can do for raising credit scores are: KEEPING A CLEAN PAYMENT HISTORY 1. Pay on time. At 35%, payment history is the largest area of concern to lenders. The only thing that will damage your score more than late payment is total non-payment. 2. Did I mention pay on time? AMOUNT OWED - NOT TOO MUCH (BUT NOT TOO LITTLE) 3. Ideally keep your debt to credit ratio to 30% or less. This means only using 30% of your available credit per card.For example, if you have a card with a credit limit of $1,000, keep the balance at $300 or less. 4. This holds true per individual card but also for your debt to credit ratio overall. This means you need to pay down debt - not just move debt around. This is a frequently misunderstood aspect of how to raise credit scores. You will save money by doing the 0% APR balance transfer dance, but you will not improve your FICO score. LENGTH OF CREDIT HISTORY 5. A longer average account age will boost your score. This means that opening new accounts can lower your score because a new account will bring down the average age. 6. Point 5 above has a rider - if you have poor credit you need to re-establish your credit and rebuild your credit. This means taking a hit in the short term by applying for as much new credit as you can get so that in the long term your score will improve. NEW CREDIT DOs AND DON'Ts 7. Don't constantly apply for new credit. If you are shopping around for credit, try to squeeze the applications into a short time frame. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur. If you are just starting out building your credit, a lot of inquiries will lower your score more than someone with a longer history. 8. Do request a copy of yor credit report regularly. Requesting a copy of your own credit report does NOT damage your credit score. This is an Internet myth. Requesting your own credit report or credit score from an authorized provider does not set off alarm bells the way that multiple requests sometimes does. TYPES OF CREDIT USED 9. Mix it up. A combination of revolving credit such as credit cards and installment payments like a car loan is ideal. 10. Avoid store cards such as Target, Home Depot and so on. These count as lines of credit as opposed to revolving credit like regular credit cards. Store cards are not given much respect by credit scorers. In the long run, the convenience or in-store discounts will not make up for being refused a VISA card or a prime mortgage rate later on down the track.
Return from How to Raise Credit Scores to Average FICO Score
|
