Best Ways To Increase Your Credit Score
Jul 11, 2009 Business Loan
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In the old days the “man behind the desk” decided to give you a loan or not. Your handshake was the contract and your honor was the collateral. Now however the “man” has a name…the name is FICO SCORE.
Although there are several credit models, the most commonly used is FICO, based on a model created by Fair, Isaac Company. Their consumer website is myfico.com, and you can find information about the FICO credit scores there.
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.
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.
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.
Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.
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.
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: Fix your bad credit
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.
Your credit history is the most important part of your FICO score. You need to start paying your bills on time. The value of your bills is as follows. Mortgage first, followed by installment loans, then credit cards.
The next largest factor on your credit is how you have used it. You can improve it by paying off 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.
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