3 Ways to Improve Your FICO Score

Posted by Doc Schmyz

September 4, 2008

by Doc Schmyz

Once upon a time you could walk into a bank and get a loan on a handshake and your honor. This was when you actually dealt with a person and were seen as more than a number on a spread sheet. Now it?s all about your FICO score.

Several credit models can be used for this article, however we are going to focus on the Fair, Isaac Company model. Better known as FICO.

A FICO score is one of the main factors used to determine your interest rate and the amount of a loan you will be offered. A good score makes you a more attractive loan then say someone who has a less then stellar credit history.

Keeping your credit history in good order and improving your rating is not a hard thing to do…but it will take time. Here are a few ideas how to do just that.

FIRST: You need to get a copy of your credit history

There are many reasons you may have no credit history. Maybe you’re just starting out, maybe you pay cash for everything and have never needed a loan. In any case, if you have no credit history, your FICO score is likely to be low.

An easy way to improve your credit history is to get a loan and pay it off onetime. A loan such as a car loan (also known as an installment loan) is generally looked at as more important, and given more value, then a credit card loan.

Another option is to take a $1000 and open a 6 month CD at a bank. Now turn around and get an installment loan using the CD as the collateral. You then take that $1000 loan and do it again at another bank. Do this for a total of 3 times.

Let the CD’s mature, paying only the minimum for the 6 months. Once they mature you cash them out and pay off all three loans. Congratulations…you now have a credit history.

SECOND: Keeping your history in good standing.

Ok…now you have a good history. No major debt…now to keep the FICO as high as you can.

You don?t need to close old accounts. (Unless you?re being charged a fee to keep the account open.) Part of the FICO formula is based on the amount of credit available vs. how much you have used.

Something to think about. The day of the month you pay off your credit card may have a lot to do with your FICO score. Let?s say you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here’s what happens - your credit card company reports your credit information monthly to FICO, but they report it on the 10th of the month…and you pay on the 15th. This would cause the credit agency to see you carry forward a balance every month. Try changing the payment times…just is sure NEVER to pay late.

THIRD: Fix your bad credit

For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.

The most heavily weighted part of your score is based on your payment history. The first thing to do to start repairing your credit history is to pay your bills on time. The mortgage is the most important, followed by installment loans, and finally credit cards.

The next largest factor on your credit is how you have used it. You can improve it by paying off your credit cards.

At the end of all this, make sure you review your credit report. Get one report from all three credit agencies. Read every page. (I know it reads like stereo instructions in Greek) Look at the entries and call and contact the creditors to have them remove any errors.

A strong, healthy, and clean credit score is a major part of your financial world. Keep it clean and don?t risk it. A good score can factor into things you can’t imagine. Don?t damage your score if you can help it.

About the Author:

Doc Schmyz has worked with investors all over the U.S. ,Canada, and Mexico.. His website gives thousands of investors up to date real estate investing information Get more info from across the U.S. ,Canada, and Mexico. on Doc’s real estate investing resources page.

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