Credit Repair

The No-Nonsense Tips On How To Improve Your FICO Credit Score

Your FICO credit score is determined on the basis of five major factors – payment history, the amount of outstanding balance on your debts, length of credit history, new credit, and the types of credit. If you want to improve your credit worthiness, you will have to work on these five areas. Following is a brief rundown on some useful tips and suggestions on how you can manage your credit responsibly over time.

Types Of Credit

The types of credit contribute to 10% of your score. You can follow these tips to improve your situation in this particular area.

1. It is common misconception that closing an account can help you improve your score. It is important for you to keep in mind that even when you close an account, it still keeps showing on your credit report. In fact, closing an account sometimes hurts your credit. So, don’t do that.

2. Do not completely stop using credit cards. Having credit cards is good for your FICO credit score; its overuse is bad. As long as you manage your cards responsibly, you will have no problem. It is important to note that the score actually increases if you have installment loans and credit cards in your name – the only condition is that you must make your payments in a timely manner. If you have credit cards, do not just make the minimum payments; pay your balances in full every month. Remember, if you have no credit cards at all, you will be at a greater risk of damaging your score than those who have cards that they manage responsibly. Make sure you have at least one credit card (where you must make timely payments), if not more.

3. Do not open new accounts within a very short period of time. Open it or even make enquiry for it only when it is absolutely necessary. Many people try to open new accounts with the only objective to acquire better credit mix. But this strategy can be very risky and you are eventually likely to end up hurting your score.

New Credit

10% of your score depends on how you deal with new credit. You can find the following suggestions helpful while you are working on this area.

1. Many people have the misconception that every time they check their credit report, it adds a negative entry on their report, reducing their FICO credit score. This is just not true. In fact, you are strongly recommended to check your reports once (if not more) every year – it does not have any negative impact on your report. As per the laws in the United States of America, you are entitled to get one free report from each major credit bureau at least once in every twelve months.

2. If you have had problems with the payment history, you will have to work hard to re-establish it. You will have to obtain new loans and then pay it off in a timely manner. This strategy will obviously take several months before you could see any significant improvement in your score.

3. Do not shop for new loans within a very short period of time. Your score gets adversely affected on the basis of how many enquiries you made within what length of time and for which types of loans (whether it was for single loan or for multiple credit lines)

Length Of Credit History

The length of credit history contributes to 15% of your score. You are strongly recommended not to open too many new accounts within a very short period of time, as it will affect the length of your credit history also and will eventually significantly reduce your FICO credit score. When your average account age gets lower, it will have a very negative impact on your score, especially if there is not much credit information in your name. For a new credit user, opening lots of new accounts rapidly can be very risky.

The Outstanding Balance On Debts

30% of your score depends on how much balance you have on your debt accounts and how fast it is reducing.

1. Obtaining lots of new credit cards will also have adverse effects on this area as well. When the outstanding balance of your debts increase, it will actually reduce your score.

2. Even if you are not using a credit card, do not close it. When you have a credit account with no balance due on it, it will have positive impact on your FICO credit score.

3. Pay off your debts. The faster the debt balances reduces, the faster you will see improvement in your score. Many people who have lots of accounts with low balances on each of them sometimes consider managing their debts in such a way that they end up having fewer accounts with as much balance. They think it will help them raise their score, which is not true. In reality, this strategy can actually backfire and reduce your score. Having the same balance on larger number of open accounts is better for the health of your credit worthiness.

4. You must work on strategies to keep your balances low on your debt accounts. Having larger number of accounts is not a problem; having too much balance is.

Payment History

Your payment history is the most important factor, as it affects 35% of your FICO credit score. Building and maintaining a good payment history is thus crucial.

1. You must do everything possible to ensure timely repayment on all your debt accounts. Make sure you pay all your bills in time. Avoid collections and delinquent payments.

2. It is important for you to keep in mind that even if you pay off the balance on a collection account, the negative entries stay on your report for the next seven years. Therefore, manage your debts in such a way that it should not go to collections.

3. If you have made defaults, try to get current with your monthly payments. If that means working with a credit counselor, go for it.

4. If you are negotiating a more favorable repayment plan with your creditors, you must pay attention to how they are going to report the debt payments to the credit bureaus. Request them to report it as “paid in full”. If they report it as “paid in settlement” or “paid as per repayment plan”, it will reduce your score.

Overall, when you develop your strategies while focusing on the above five areas, you can come up with better and faster ways on how to improve your FICO credit score. If you have more ideas, feel free to share the same in comments.

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One Response to “The No-Nonsense Tips On How To Improve Your FICO Credit Score”

  1. Dennis says:

    Improving credit score should be treated as a slow and steady process. There is not short cut of getting a good credit score instantly so always invest on long term proposals. If you are using your credit card in a sensible manner, there will be no problem but if you are not making the payments in time or making the minimum payments, it will affect your score badly. Make a habit of repayment the installments in full. Payment history is a very important factor in the calculation of credit score. You can obtain new loans and then show the punctuality in the paying back of these loans, it will improve the score. Do not try to open new accounts in a very short span of time; it will also affect the score. If you have a big amount of debt in your account, it will ruin your credit score. You should b every fast to reduce your debts. Your score will get a new hike. Repayment in time is very important, because by doing this; you can show your commitment and financial strictness, it also boosts your credit score. Slow and steady wins the race, so take some consistent steps.

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