3 easy steps to a better FICO score
Once upon a time you could walk into a bank and get a loan on a handshake and your honor. This was when you actually dealt with a person and were seen as more than a number on a spread sheet. Now it?s all about your FICO score.
We can talk about several ways to review your credit but to keep it simple we are going to focus on the credit model created by Fair, Isaac Company. Better known as FICO.
Your FICO score is the method used to determine the interest rate as well as how much credit a bank or lender is willing to give you. the cleaner the credit…the lower your rate and larger the sum you qualify for.
Getting and improving your credit score is not hard at all, just takes time. Here is a tip or two that will help you improve and increase your score.
FIRST: You need to get a copy of your credit history
You may not have a history for several reasons. Maybe you pay all your bills with cash, maybe you?re a student, maybe you have never needed a loan for anything. All this will have an effect on your history. Don?t be upset…if you?re like most people you will get a credit history far sooner than later.
A fast and easy way to improve or start a credit history is to get a loan and pay it off on time. “Installment loans” are looked at as more important than credit cards. You will show a stronger score if your installment loans are paid up to date and on time then say a consumer credit card.
Another option is to take a $1000 and open a 6 month CD at a bank. Now turn around and get an installment loan using the CD as the collateral. You then take that $1000 loan and do it again at another bank. Do this for a total of 3 times.
In the end you have 3 loans. Pay the minimum payments for 6 months…then cash out the CD’s and pay off the loans in full. Now you have a credit history.
SECOND: Maintain Your Good Credit History
Ok…now you have a good history. No major debt…now to keep the FICO as high as you can.
Don’t close your old accounts. One part of your credit score is based on the amount of credit available verses amount of credit used. Closing old accounts can lower this part of your score.
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: Fix your bad credit
For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.
The FICO score is most affected by your credit history. To repair a low credit score start paying your bills onetime. In order of value you need to pay your Mortgage, Installment loans, and last your 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.
When you?re all done with the rest of things…review your credit report. Get one from all the credit agencies. Look for errors and mistakes. Contact them to see if they can remove them or correct the errors.
A good FICO score is a huge part of your financial life. Keep it healthy. Use these tips and watch your score climb.
