Having a great credit score higher FICO score is essential to getting the best rates on mortgages and other loans. Here are 8 ways to improve your credit score so that you can access better deals. Let’s start by defining what the FICO score is.
FICO is the most commonly used credit score today. The term comes from the company’s original name – the Fair Isaac Corporation.
To calculate credits scores, FICO uses information from three major credit reporting agencies – Equifax, Experian, or TransUnion.
A common misconception is that most people confuse FICO as a credit reporting agency. FICO is a predictive analytics company that primarily focuses on credit scoring services, providing a three-digit number that determines a potential borrower’s creditworthiness.
lenders will usually require a version of your FICO score.
Aside from loans, you might also encounter FICO scores when dealing with your insurance providers, landlords, or cellphone companies.
Your FICO score is generally affected by these five factors on your credit report:
Payment history: It is perhaps the most essential information among all types of scoring model. Payment history accounts for around 35% of your total credit score. Thus, any late payment will have a significant effect on your FICO. Credit utilization: This criterion refers to the balance-to-credit-limit ratio, and accounts for around 30% of your FICO score. To get a higher score, you would not want to use not more than 30% of your available credit on a single card or in total. For instance, if you have credit cards with combined limits of $15,000, you can achieve a higher FICO score if you keep your combined balances not more than $4,500. Length of credit history: The age of your credit accounts for about 15% of your FICO score. It is based on how long an account has been open. A longer credit history means a higher credit score. Recent activity: This factor looks on how much new credit you’ve applied for in the past 3-6 months. If you’ve applied for credit many times in over a couple of months, you’ll be seen as a risk and will reflect a lower FICO score. The number of recent credit applications accounts for 10% of your FICO credit score. Credit Mix: This refers to the different types of accounts you have including auto loans, mortgages, credit cards, student loans, and other installment loans. Having a varied number of credit types can help raise your score slightly. However, be careful in applying for several accounts all at once as they may do more harm than good to you. Credit mix accounts for the remaining 10% of your FICO score. Having a good credit score has several benefits, including getting better rates on your insurance, increasing your chances of a mortgage, credit card or auto loan approval, receiving better interest rates, and having more negotiating power.
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Factors Not Included in Your FICO Score While FICO considers a wide range of data to arrive at your credit scores, there is information that is not included on their evaluations. According to FICO, none of the following has an effect on your credit score:
Race, religion, national origin, color, sex, and marital status Age Employment information: Lenders may, however, consider this information.
Verify Your Accounts Are Current As mentioned earlier, payment history accounts for the most significant percentage on your FICO score. Therefore, it’s vital that you verify that all your accounts reporting to your credit report are current. If you see any accounts on your credit report that are past due, make sure to catch them as soon as possible and pay at least the minimum required payment within 30 days of the due date. If you manage to pay accounts on time with no late payments within 12-24 months, expect a dramatic increase in your FICO score. Improve Your Debt Utilization Ratio As previously mentioned, credit utilization accounts for about 30% of your FICO credits score. Therefore, focusing on the second most crucial criterion will help improve your FICO score. Generally, debt utilization of 30% or less is considered good.
this ratio is to reduce the amount of debt you owe either by paying them on time or taking a break from using your credit cards. You may also increase your credit line to remain under the 30% threshold. Dispute Inaccuracies on Your Credit Report As soon as you spot an error on your credit report, request a correction immediately. This is essential because removing even one late payment from your credit report can greatly raise your FICO score. To correct the information, you’ll need to submit documents supporting your position. However, if you have a mortgage, you can benefit from a process called “rapid-rescoring” which will help you settle the problem fast.Include Rental Information on Your Credit Files FICO Score 9 now includes rental history on credit scores evaluation (see more below). So if you’re renting your own residence, you may ask to have your rental payment history added on your credit reports. Studies have shown that including this data on your credit files can raise your credits scores by 10-20 points, provided that you’ve been paying your rental fees on time. If you have an excellent rental history, take advantage of this method to get higher credit scores. However, take note that you have to ask your landlord to verify your on-time payments and companies, such as RentTrack.com or Rent.Reporters.com, to supply the information to the credit bureaus. Time Your Payments One effective way to increase your credit score is to pay your balances on time or if possible earlier than the due date. Lenders usually report to credit bureaus once a month. If you fail to pay them at the right time, it will reflect negatively on your credit files and will cause your credit score to go down consistently. Ask for a Little Grace There are times when you ended making a small slip up, and you weren’t able to pay your accounts on time. If you have a good payment history, you can ask a creditor to help you out and give you late-payment “waived.” This works best if you spot the delinquency early and contact them right away. You can try making a phone call and ask for a little grace while explaining your story behind what happened. Creditors are lenient if there’s a legitimate reason and if you can reason out measures you’ve done to avoid a repeated occurrence. Settle Up Collections, Charge-Offs, Judgments, and Liens When reviewing your credit report, check if you got credit card charge-offs, old collection items, and liens. If you’ve got any of those mentioned on your credit report, contact your creditors and collection agencies and settle the items one-at-a-time.
FICO Score 9 has de-emphasized medical collections. This is based on their research which showed that unpaid medical accounts have a lesser credit risk than due non-medical accounts. Considering the complexity of the medical system in the country, this change on the FICO score is quite sensible. Due to various factors, collections concerning medical bills have become pervasive. According to the Wall Street Journal, there are 64.3 million people who have medical collections on their credit reports. Paid Collections The latest version of FICO has disregarded collection situations that were paid off in full by the consumer. This is good news because not only does previously paid collections will cease to drag on your credit score, but it will also generate an incentive to pay off any that are still open. In other scoring models, paid collections don’t serve as much of a benefit. A person who owes a debt might be motivated to wait for years until a paid or unpaid collection is removed on their credit report. However, with FICO 9, paying off a collection will make it nonexistent as far as your credit score is concerned. Rent Payments A not so good rental history will be reported against you, such as unpaid balances or charges with property damage. But an excellent rental history used to not be reflected on your report even if you’ve been paying rental payments on time for years. With FICO score 9, rental history is now factored into your credit score when a landlord reports payments to one or all of the credit bureaus. This latest score version is especially helpful to those who have good rental histories or to those who have little credit. However, it’s a piece of bad news for those who don’t pay their rental fees on time. How to Check Your Credit Score FICO score is the credit system used in approximately 90% of US lending decisions. Since more people want to know the scores their banks are using, FICO scores are now directly available to consumers. You can find your FICO scores from RCC, Trans Union, and Experian by visiting myFICO.com.
