FICO Score

How You Can Improve Your FICO Score

A FICO score is a three-digit number that institutions depend on to determine their financial risk when you are applying for credit. To improve your credit rating, it is necessary to understand how your score is established. Five major factors determine your credit score: your payment history and your total amount of debt owed accounts for the largest percentage of your FICO credit score, while the length of your credit history, any new credit, and the types of credit make up the remainder of your credit score.

When you know how your score is calculated, you can see which financial transactions have the largest impact on your score. There is no quick fix for a low FICO score, but you can raise it using self-discipline, diligence and time.

The three big credit-reporting agencies are Experian, Equifax, and Transunion. By law, each agency must provide you with a free copy of your credit report yearly, if you request it. You can monitor your credit history every four months at no charge.

The free credit reports do not include your FICO score, but you can subscribe to a service and get your credit report and FICO score on a regular basis for a small fee. Improving credit starts with getting a copy of your credit report, and examining your credit history for errors. One typo or mistakenly entered piece of information can make a huge difference in your score. Dispute any incorrect information with the credit-reporting agency and provide proof to get it corrected. Credit history will stay on your credit report for seven years, and in the case of bankruptcy, for 10 years.

If you suspect identity theft, request that the reporting agency place a fraud alert on your account. Change all account access information including user names and passwords. Install virus protection software and a firewall on your computer. A misconception about your credit score is that the more often you pay cash, the better your score will be. The opposite is true. You must establish credit before you will have a credit score. No credit has nearly the same results as bad credit.

To improve your FICO score, stop using credit cards and make all your payments on time. Late and missed payments drop your score quickly, but if you start making them on time, your score will gradually increase. Set up email or text alerts to remind you when your payments are due, or set up alerts on your own computer. Enroll in an automatic payment program to have payments automatically deducted from your bank account. Even a payment that is only a few days late decreases your score. Any history such as liens, judgments, collections or other adverse activity is detrimental to your FICO score.

Reduce the total amount of debt you owe. The calculation for scoring purposes is the amount of credit you have access to versus the percentage you actually owe. Do not use more than approximately 30% of your total accessible credit or more than an estimated 30% of available credit on a credit card. Higher amounts may start to decrease your FICO score. It is better to maintain several small balances than to have one large one. Keep unused credit card accounts open because they raise the total amount of existing credit. This allows you to owe more money, but stay within the 30% ratio.

Pay off your highest interest rate account first while you continue to make minimum monthly payments on the others. After you pay the first one off, do the same on the next highest interest rate account until the balances are paid. Maintain your credit cards, but handle them responsibly. Use them if you have the money to pay the bills when they come in. As time goes by and your total debt decreases, your good payment record will gradually increase your FICO score and your bad credit will start to fade.

If you are unable to pay all your bills on time, contact your creditors and try negotiating a lower monthly payment. Seek credit counseling assistance if you are still unable to get out of debt. Credit counseling has no effect on your FICO score. Continue to monitor your credit reports for errors and signs of identity theft. To help prevent identity theft, keep sensitive paper and computer documents secure. Keep credit card receipts and reconcile them with your monthly statements. Protect your improved FICO score, because it is among the most important numbers you possess.