Improve Your Credit Score

How To Improve Your Credit Score

  Your days are numbered—by your credit score. Your credit score is something you can never get rid of. Once used for the purpose of obtaining credit cards, now your score can be used for determining interest rates for loans, for insurance premiums, employment and rentals. FICO or the Fair Isaac Corporation determines your credit score. This is the breakdown of how it’s handled:  
  • 35% = payment history.
  • 30% = amounts owed.
  • 15% = length of credit history.
  • 10% = new credit.
  • 10% = kinds of credit.
  The range of FICO scores are 300 to 850. Most fall into the 650 and above range. Less than 20 percent fall into the poor credit scores range, the rest somewhere in the middle. The flailing economy caused creditors and banks to tighten the reigns on credit scores and who they will lend to—what used to be a good score, may now be quantified and qualified as a poorer score depending on the creditor’s determining factors. If you can pay down your debt, you are on the road to FICO recovery.   Pay Down Existing Credit Cards The jury’s out regarding the most effective way to pay down debt and up your credit score. You can “snowball” your debt by paying off the lowest balances first, then use that momentum to pay off your larger balance cards. You can pay off your high interest rate cards first or pay them all down just enough to up your score. This means that all cards must have a debt-to-limit ratio of no more than 30 percent. Then you have to keep it that way. For many, it’s a lifestyle adjustment and a difficult one.   Apply For A Secured Credit Card Secured credit cards are backed by a savings account which acts as collateral for your account. Your credit line usually equals the amount of money in that savings account. Some secured cards will offer special incentives such as credit lines 1.5 times or double the savings account. Beware that fees can be quite high and that you likely won’t have the same kind of benefits that a non-secured card issues.   Don't Use The Whole Credit Line Keep your debt-to-credit line ratio under 30 percent. The more you inch toward your credit line, the less creditworthy you appear. Finance charges, late and over-the-limit and other account maintenance fees can bring you closer to your credit line or snag you over it. Keep your charges low by using cash or debit cards or by spreading your charges over another credit card or two.   Ask A Creditor For Forgiveness It never hurts to phone your creditor and ask for forgiveness for making a late payment or missing a payment. Many credit cards offer payment protection plans. Read the fine print to see if such a plan is right for you. Payment protection plans can offer one or more months payment forbearance or forgiveness, especially if you have recently changed jobs, had a baby or just need a month off from payment. But such plans come with monthly price tags, some quite high.   Don't Bounce Checks Non-sufficient fund checks don’t generally show up on your credit report until they have gone through a legal process or judgment. If you bounce a check, you will be paying bounced check fees to all the parties involved, save yourself. This can be quite costly, especially if you are living paycheck to paycheck as most Americans are these days. This takes money away from other bills, household expenses, including food and rent. If checks are presented twice, often it’s twice the fees—and a downward spiral into indebtedness. Then you play catch-up and rarely does robbing Peter to pay Paul catch you up.   Pay Bills On Time Don’t be late on your bill payments—not once. Some creditors will report late payments before the customary 30 days. Most wait until you are 30 days late—or whatever mandates your creditor has in writing. When in doubt, call your creditor. Ask for a grace period; get everything in writing by snail mail or email. Verify that your creditor waits 30 days to report if you need extra time to pay. Just don’t miss a payment.   Get A Collection Agency To Remove A Debt From Your Credit Report If You Pay Right Away Once a collection agency reports to one of the three credit bureaus, the data stays on your record for seven years—bankruptcies up to 10 years. The credit bureau will only list that the account has been paid. It will still show up as negative data until the seven years is up. Many people confuse this timeframe with the statute of limitations on unpaid credit accounts, which varies by state. Bottom line: the collection agency cannot remove the debt from your credit report.   Avoid Constantly Switching Employers Job-hopping may look like you are rising in the ranks on your resume—but not to a creditor. Your credit score may suffer a hit if you appear to be unstable in the job market. Creditors like to see routine: routine job habits, routine payment habits. Changing jobs to them usually means that you may be starting with a new budget to acclimate to the new income system. Five years is a stable appearance.     Avoid Constantly Changing Residences Just like avoiding job changes; you should avoid changing your address too often. Credit bureaus list address changes on your reports. Too many changes make you appear less creditworthy and unstable to potential creditors. The more years you appear to stay at one address, the more reliable you appear.   Review Your Credit Report Once A Year There are three credit bureaus that keep tabs on your credit usage. Experian, Equifax and TransUnion catalogue your credit history, payments made or not made, credit inquiries and legal issues regarding your credit. They do not determine your creditworthiness; your creditor does that. The credit bureaus simply record data as well as your FICO credit score. It’s in your best interest to review your credit report annually.   An important note: there’s a new player in town competing against FICO. It’s called VantageScore. VantageScore’s are based on six variables, not five like FICO. It’s range is 280-990. Not all the credit reports will report both FICO and VantageScores.