Increasing your FICO score may take time and often there is no quick fix. FICO scores reflect credit payment patterns over time with an emphasis on recently reported information than older information. There is good news, your old credit doesn't last forever. FICO scores range from 300-850, and most people score in the 600s and 700s. FICO credit scores above 700 are very good and a sign of good financial health. FICO scores below 600 indicate high risk to lenders. If you are looking for a home or car loan, lenders typically practice tiered pricing, with interest rates rising as scores go down. If lenders have their best rates offered to borrowers with a score of 700 or higher and yours is a 698, those two points could cost you thousands of dollars.
Here is a break down of How a FICO score is assessed.
1. Your payment history accounts for 35% of a FICO score.
Late payments, bankruptcies, and other negative items can hurt your credit score. Make your payments on time to improve your credit score.
2. How much you owe accounts for 30% of a FICO score.
FICO scores look at the amounts you owe on all your accounts, the number of accounts with balances, and how much of your available credit you are using. The more you owe compared to your credit limit, the lower your score will be.
3. The length of your credit history accounts for 15% of a FICO score. A longer credit history will increase your score. However, you can get a high score with a short credit history, it will show responsible credit management.
4. New credit accounts for 10% of a FICO score.
Recently applied for or new credit accounts will weigh against the rest of your credit history. If you need a loan, do your rate shopping within a focused period of time, such as 30 days, to avoid lowering your FICO score.
5. Other factors account for about 10% of a FICO score.
Minor factors include several credit types on your credit report – credit cards, installment loans such as a mortgage or auto loan, and personal lines of credit – is normal for people with longer credit histories and can add slightly to their scores.
Smart tips on increasing your FICO Score.
- Make a decision to make an effort to improving your credit score even if you have stains on your past credit. From now on, get pay your bills on time. If you can pay your bills on time, month after month, your score will improve. Older credit problems count for less, so poor credit performance won't haunt you forever.
- -Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven years.
- -Keep balances low on credit cards and other “revolving credit”. Limit the percentage of available credit you use to no more than 30%, even if you pay off your balance each month. Excessive spending will ding your score. A person making a great income, but has a $500 gas credit card that is almost maxed out, causes damage their credit score, even on small credit cards such as the example.
- - Don't close unused credit cards as a short-term strategy to raise your score. Closing your accounts hurts your score as it affects your available credit. Keep old accounts open to ensure a long credit history. The FICO Score is looking for credit cards that were high and show a history of current and up to date payments.
- -Don't apply for lots of credit cards at once, as a credit inquiry can deduct five points from your credit score. However, multiple checks made when you're shopping for a mortgage will count as only one.
- - If you have been managing credit for a short time, don't open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information
- - Checking your own credit score will not won't affect your score, as long as you order your credit report directly from the credit reporting agency.
- -Closing an account doesn't make it disappear off your credit report. A closed account will still show up on your credit report.
- - Apply for credit once you are in college. Lenders make it very easy for a college student to get a credit card, than a working individual out of highschool- Simple fact. If you can establish a good history at a young age, you will be further along than most people who have no credit history, finding themselves convincing the bank to give them a credit card.
- -Opening new accounts effects your score negatively, simply by applying, and having that new account for as long as a year afterward.
-Don't discredit the simple bank account. Having a checking or savings bank account can be a sign of being stable.
- If you are trying to improve your damaged credit score, you may consider having your name added to a credit card as a joint account holder or by getting someone to co-sign a loan for you. If your father adds you to his credit card, for example, his history with that account can be imported to your credit bureau file, giving you an instant credit record. If he has a great account history, his file will reflect on you. Likewise, if a parent opens up a credit card for their daughter or son, and the child misses payments, that reflection will be held on the child's credit file and the parents file. Both parties become responsible for debt on the card, and it's difficult to get your name removed from the account. This is often not reccomended, as it adds stress on the family.
- -Transferring credit card balances can effect your score. If you choose to transfer your balance keep in mind that formula likes to see a wide gap between your balances and your limits. Transferring a balance from a high-limit card to a lower-limit card makes it look like you're closer to maxing out that second card, and the scores can react negatively.
- -Settling debts, is one way of reducing your credit score, as strange as it may seem. You would think that a person would be rewarded by paying off debt, but instead you are penalized. Banks look at a steady customer who uses their credit cards as better customers than those who pay with cash. Try to increase your credit score if you are buying a home or car, and afterwards it is always recommended to get out of debt.
- -It is also said that library fines, parking tickets or other penalties unrelated to credit can affect your score.
