Your Fico credit score is an accurate reflection of your financial history and is used by most lenders to assess if you are a high risk customer or a welcome one. Your credit score affects far more than your ability to obtain a new credit card: it can determine your credit card limits; the interest rates you are offered on loans, credit cards and mortgages; the insurance premiums you pay; and even aid in determining if you get the job you want or an apartment to rent. If your credit score is open to improvement there are some simple ways to improve it.
One of the ways the system works is that someone who has never used credit and has no credit score, is deemed a higher risk than someone who has used credit responsibly. Thus the first venture into credit may result in a score of around 620, which is considered low. The median credit score is 725 and an excellent credit score is one over 770. A score under 680 leaves a lot of room for improvement.
Someone new to credit use should not make the classic mistake of trying to open too many new lines of credit too quickly, as this will have a detrimental effect on their score. It is better to proceed slowly and build credit first, before applying for more. Anyone with a credit history of less than 2 years is considered new to credit.
The Fair Isaacs Corporation, who determine the Fico score, now give out their own advice on simple ways to improve your credit score. Use myfico to keep up to date with any changes in the Fico scoring system. Fair Isaacs are certainly better placed than anyone else to tell you how to make improvements. Their first piece of advice is to pay all bills on time, which can be easily organized by setting up automated payments through your bank account.
They next advise that if you have missed payments then get up to date and then stay up to date. Whilst missed payments will stay on your report for seven years, a consistent pattern of paying on time will begin to negate any previous mistakes.
Fair Isaacs go on to advise that you should keep balances low, but they do not specify how low, though the rule of thumb has always been assumed to be around 30 percent of available credit. As Fair Isaacs are pleased to report that over 50 percent of all credit users do actually use less than 30 percent of available credit that seems a fair indication that 30 percent is the actual ratio you should adhere to.
They advise it is better to pay off your debt rather than moving it around, which is bad news for the ‘rate tarts’ that constantly move balances to take advantage of zero percent interest rates, which can be an astute financial move.
It is advised not to close down old credit cards as they reflect the length of your credit history. Don’t cut them up, but pull them out occasionally and use them to keep them active on your credit file. At the same time it is advisable not to open new cards to increase your available credit. You can instead raise the credit limit on current cards. Those with bad credit should look to rebuild their score by re-establishing credit.
It is wise of course to check that no erroneous information is held on your credit files, so do apply for a free annual report from each of the 3 main credit bureaus. If there are any mistakes on your account they should be removed within 30 days.
Although there are no quick fixes to improve your credit score, be aware it can plummet much easier than it rises and patience is required to see an improvement. Follow the advice which Fair Isaacs offer as they really do have the inside scoop on how they determine your Fico score. They also have a forum on their web site where consumers can exchange information and report on how they are getting on as they endeavour to improve their credit scores.