Improving Your Credit Score

This is the second post in a 3-part series on credit. This post helps explain how to improve your credit score. It's important to note that raising your score takes time and there is no quick fix. Let me repeat that: there is no quick fix. In fact, quick-fix efforts can backfire. The best advice is to manage your credit responsibly over time. Here are some tips to help:

Payment History Tips:

• Pay your bills on time: Delinquent payments and collections can have a major negative impact on your score.
• If you have missed payments, get current and stay current: The longer you pay your bills on time, the better your score.
• Be aware that paying off a collection account will not remove it from your report: It will stay on your credit report for seven years.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor: This won't improve your score immediately, but if you can begin to manage your credit and pay your bills on time, your score will improve over time.

Amount Owed Tips:

• Keep balances low on credit cards and other revolving credit: High outstanding debt can affect a credit score.
• Pay off debt rather than moving it around: The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
• Don't open a number of new credit cards that you don't need just to increase your available credit: This approach could backfire and actually lower your score.
• Don't close unused credit cards as a short-term strategy to raise your score.

Length of Credit History Tips:

• If you have been managing credit for a short period of time, don't open a lot of new accounts too rapidly: New accounts will lower your average account age, which will have a larger impact on your score- if you don't have a lot of credit information in your file. Also, rapid account build-up can look too risky if you are a new credit user.

New Credit Tips:

• Do your rate shopping for a given loan within a focused period of time: FICO scores distinguish between a search for a single loan and a search for many new credit lines in part, by the length of time over which those inquiries occur.
• Re-establish your credit history if you have had problems: Opening new accounts responsibly and paying them off on time, will raise your score in the long term.
• Check your own credit report, at least yearly: Ordering a report will not affect your credit score as long as you order the report through the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit Use Tips:

• Apply for and open new credit accounts only as needed: Don't open accounts just to have a better credit mix- it probably won't raise your score.
• Have credit cards- but manage them responsibly: In general, having credit cards and installment loans (and making timely payments) will raise your score. Someone with no credit cards for example, tends to be a higher risk than someone who has managed credit cards responsibly.
• Closing an account will not make it go away: A closed account will remain on your credit report and may be factored in the credit score.

    Fair Isaac Corporation, better known as FICO, developed the credit scoring system as a way to determine credit risk. In 1956, Engineer Bill Fair and Mathematician Earl Isaac founded Fair Isaac with an initial investment of $400.00 each. The first credit scoring system was built in 1958 and today, FICO’s are the most used credit scores in the world. These scores are what lenders use as a way to predict how likely you are to make your credit payments on time.

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[Sergios]

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