Improving Your FICO Score
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Boosting your credit rating
Your credit score, or FICO score, is an important part of your personal finance situation. Knowing your credit rating is only part of the battle, though. Once you know where you stand, you need to know how to boost your score. A 620 is considered high risk, so it is important to try and keep your credit score near 700 or above. Here are some things you can do to boost your score:
- Pay your bills on time. Not only is making credit card payments on time important, but paying your other bills on time is also necessary. If you are late too often, your utility company may report you to the credit bureaus. Also, late medical bills and other obligations can result in a lower score.
- Make at least the required minimum payment. Pay the required minimum each time. Sometimes if you do not pay the minimum, it still counts as a late payment, even if you have paid some of the amount.
- If you can't make a payment, contact your creditors. Usually they will help you out a little bit, or at least set a schedule you can meet. And, if you pay according to the new agreement, many creditors will forebear reporting you.
- Pay down the credit card debt. Many credit card companies report your limit to the credit bureaus. The farther your balance is away from the limit, the better your credit score.
- Try to keep debt level low. Part of your FICO score is your income-to-debt ratio. So, if a large portion of your income goes to making debt payments, or if you have a lot of debt for what you make, then it can negatively impact your credit rating.
- Avoid requesting new credit multiple times in a six month period. If you make numerous requests for credit, whether at the department store, applying for a credit card, getting a loan or signing up for satellite TV, it shows in your credit report. Many requests (more than 2 or 3 in a six month period) can damage your FICO score.
It will take a few months for your credit score to start moving upward. And things like cancelling a credit card, or applying for a new credit card, can halt your progress. So, if you are trying to improve your FICO score, hold off for a while on cancelling a credit card, or applying for a new line of credit.
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I was told two different things about credit by two different sources. One company told me to pay off as many bills as I possibly can to raise my credit score. Another told me to reduce the balance as far as I can and keep it open. the second source also told me to use the card at times and the next month pay it off. that showes longevity and looks good. Which of these is the better choice. I am confused!
Both are essentially correct. You should pay off as many bills as possible. Bills include medical bills, consumer loans and outstanding balances on things like your power bill. It isn't just credit cards. Non-credit card bills should be paid off ASAP.
But that doesn't mean closing all of your accounts. Pay down as much as you can of your debt. Choose a couple of good credit cards to keep open (you can close the other accounts). Then, make a few small purchases on your credit cards and PAY THE BALANCE OFF each month. This will help you build credit.
Pay off your debt, carefully choose some accounts to keep open, then avoid building new debt.
I read that you should apply for new credit to rebuild your score.
http://hubpages.com/hub/Debt-and-Credit-ManagementUm. No. A new application will knock your score down initially. Eventually, if you keep in good standing, it will help down the road.
Thanks for the article and all of the good information. What would you suggest for a line of credit (personal or business). Should it be kept open and how does it affect the overall credit score.
Medical bills do not count on your FICO score unless they go to an outside collection agency. Non-credit trade lines such as utility bills do not count either; paying these off will not affect your score. DO NOT CLOSE ANY REVOLVING ACCOUNTS OR LINES OF CREDIT < $50K - THIS CAN CAUSE YOUR SCORE TO GO DOWN!
Amber makes good points. The reason you should pay all your medical and utility bills on time is so that you don't get reported. Which was my point. I agree that keeping revolving lines open is a good idea. Although if you have a little time to make up for it, I'd close department store credit cards. They are basically useless and not considered "good" in terms of credit cards. Your credit score will take an initial hit, but if you do everything else for a few months, it should recover nicely.
my credit score has dropped almost 100 points in the past year,im about to sell a house which i pay 4000$ amonth in mortgage will this help my credit score move up?
Unfortunately, paying off your mortgage trade line will not help your FICO score much. It may affect the generic bureau scores, because the bureaus tend to use mortgage variables, whereas, FICO does not for various reasons. FICO score is the one that lenders care about, though.
Not having the $4000 payment will positively affect your DTI (Debt-to-Income) calculation, which is important if you are applying for a car loan, personal loan, line of credit or another mortgage. FICO is not used in a vacuum, and most lenders will recognize that your capacity to pay is better without the mortgage payment.
As far as department store credit cards, leaving them open with a 0 balance does not hurt your score, but closing them will. Your utilization calculation will increase, which means your score will decrease. You are better off just letting them go inactive; eventually the lenders will stop reporting them anyway.
Closing my department store credit cards didn't hurt my score at all; in fact, though it dropped three points initially, three months later I was 15 points higher. Don't know if that was a direct correlation, but department store credit cards really didn't help -- and they didn't hurt when I closed them.
Your points about the mortgage are quite good.
You probably have a thick bureau file, and the department store limits were likely small compared to your overall total credit limits (all revolving accounts). Someone younger with a thinner file might experience more of a drop in their score because they will lose a larger proportion of their available credit.
The fact your score went up three months after closing these accounts is probably due to paying down balances or some other positive influence. It is possible, for example, that you jumped up to the next bin in the Time-in-file variable, thus scoring a few more points.
Is it true that when paying off a credit card debt, that the payments should be broken up into smaller amounts. For example, instead of paying $1200 right now, I should make $200 payments every 2-3 weeks.
Which is a better option when paying off a credit card and trying to improve your credit score?
Is it true that when paying off a credit card debt, that the payments should be broken up into smaller amounts. For example, instead of paying $1200 right now, I should make $200 payments every 2-3 weeks.
Which is a better option when paying off a credit card and trying to improve your credit score?
In addition to improving your score, paying the bills on time is also a wise thing to do, as you would certainly avoid the late charges applied. At least it is a step to consider, if you couldn't regularly pay your bills in full at the end of each month.
I checked my credit score recently and it was 634, I'm trying to get a house and my fiance has really bad credit with many credit cards that were over the limit. He has paid alot of them down to less than half of the limit. I just paid off my two credit cards and the only thing I have on my credit report now is a vehicle loan. How long will it take for my score to go up and by how many points?
I was just told by CitiBank rep that leaving my card open with a 14,000 limit that shows unused will actually HURT my FICO score. She said I should close it if I am not going to use it.
Go figure.
Doing some simple credit repair can also help you to increase your scores. But if you have not developed good financial habits all the attempts in the world will fail on you.
Great article. Check out my hubs on credit scoring and credit improvement!
1wealthbuilder says:
2 years ago
Great Tips!
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