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Improving Your FICO Credit Score - A Quick Guide
Your FICO credit score and credit report are the main ways that lenders decide whether to lend you money. A less than perfect credit history can impact your ability to get credit, increase the interest rates that you pay and can mean less than ideal repayment terms.
Fortunately, there are steps that you can take right now to start fixing your credit history and increasing your FICO credit score. This article includes advice on how to find credit scores, budgeting, contacting lenders, prioritizing debt and practicing financial responsibility.
Anyone interested in improving their credit history can use these pragmatic approaches to reduce stress and secure their financial future.
Steps to improve your score
Here's the list of what you can do to improve your FICO score:
- Get a copy of your credit report
- Get your credit score
- Understand what your score means
- Understand and manage your income and outgoings
- Find out what you owe and who you owe it to
- Prioritize who you are going to pay off first
- Create automatic payments and reminders
- Make your payments on time
- If you are having trouble paying, talk to your lender
- Don't open or close accounts with lenders and don't move debt around
- Don't create new debt
- Practice financial responsibility
We'll cover each of these in more detail below.
Get a copy of your credit report
Get your credit score
You can get your FICO credit score through several methods:
- You can sign up with a free trial with the various credit scoring agencies
- You can go to a website like Credit Karma or Credit Sesame and get your scores through there for free
Understand what your score means
You'll want to aim for a credit score of 680 or above, as this will put you in the range of 'good' credit scores, which means better interest rates and credit repayment terms. If your score is 619 or below, it will need to be worked on urgently.
Understand and manage your income and outgoings
The only way to start reducing your debt is to spend less than you earn and use some of that surplus to reduce your outstanding debt.
There are lots of online budget calculators available that can help you work out exactly where your money is going. Once you know where your money is going, look at where you can cut costs further to free up more cash to pay down your outstanding balances.
Find out what you owe and who you owe it to
Collect together all of the paperwork to do with your debts. Make a note of any outstanding balances you have, who you owe the money to, how much of a repayment you need to make each month and the interest rates that you're paying.
Prioritize who you are going to pay off first
You should prioritize the debts that you are going to pay off; a good way to approach this is:
- Pay off your smaller balances first of all
- Pay off the loans that charge the most interest
- Pay off the slightly bigger loans
- Pay off as much extra a month as you can afford on your biggest loans
Create automatic payments and reminders
Set up bank drafts and make arrangements with your lenders to make regular repayments. This will help you budget and contribute to bringing down your debt.
Make your payments on time
Being late on a payment is one of the easiest ways to damage your credit rating. Make sure that you always make your repayments on time. Setup automatic payments and if that's not possible, set a reminder to pay your dents every month.
If you have any delayed or late payments, get up to date as soon as possible.
If you are having trouble paying, talk to your lender
If you're in financial trouble, contact your lender and explain the situation.
They may be able to defer payments or work out an alternative repayment schedule that will reduce some of the financial burden that you are facing.
Don't open or close accounts with lenders and don't move debt around
Opening and closing accounts and moving debt around can do more harm than good.
Until you have repaired your credit history, don't make changes to your credit accounts.
Don't create new debt
Try not to put any more debt on consumer credit or credit cards. These often have high interest rates and you could get deeper into financial trouble. Instead, save up your surplus income until you have enough to buy what you need to without going into further debt.
Practice financial responsibility
Understanding your finances, incomes and outgoings is essential to improving your financial responsibility.
Once you are on top of your debts, continue to budget responsibly, spend your money wisely and stay out of expensive, long-term debt.
Managing your credit score
What is the next step you're going to take to improve your credit rating?
These practical steps will all help you to rebuild your credit history, improve your score, get you out of debt and reduce the stress that you feel over your finances.
Taking some simple measures now will improve both your peace of mind and your financial security.