How To Improve Your FICO Credit Score

The Fico credit score is the one most commonly used by lenders when deciding whether or not to lend you money, and at what rate.  The higher your score, the better your chance of getting money whether it be for a mortgage, a credit card, car loan or personal loan.  Your credit score even plays a role in getting a new job, the amount you pay for auto insurance, and whether or not you can rent an apartment.  Because of it’s importance in just about every aspect of your life, you’ll want to take steps to improve your Fico credit score.

When you start taking steps to improve your credit score, keep in mind you can’t do it overnight.  It’s kind of like trying to lose weight!  You didn’t put the weight on overnight, and you’re not going to drop the extra pounds overnight, either.  But if you do the following consistently you’ll start seeing improvements to your FICO score over time:

Payment History

Your payment history plays a role in your FICO score.  Paying your bills on time consistently is the key to having a higher credit score.  If you have late payments or accounts in collections (beware illegal collection practices), you’re going to see a negative impact on the FICO score.  Get your payments up to date and keep them current by paying on time.  You usually have to pay all of your accounts on time for at least 3 months in a row before you see any improvement in your credit score.

If you have an account in collections, paying it off won’t remove it from your credit report.  Like a bankruptcy, collection accounts stay on your report for seven years but you can still see improvements to your score during those years if you pay everything else on time consistently.

Amount You Owe

All else being equal, the more you owe, the lower your credit score is likely to be.  The FICO score looks at how much you owe in relation to how much credit is available to you, so it’s never a good idea to spend up to the maximum available limits on your revolving credit accounts (like credit cards).  Also, many people try moving debt around from one credit card to another one via 0% balance transfer deals, and while that might help you save a bit on your monthly credit card bill, the best way to improve your credit score is to pay debt off rather than merely shifting it around.

Likewise, closing unused credit card accounts is not a good strategy.  Closing credit card accounts reduces the amount of available credit you have, and that increases the amount of available credit you’re using, even if you didn’t go out and finance more!

Don’t run out and open a ton of new credit card or loan accounts all at once either, in hopes of increasing your available credit.  Again, this may have a short-term boost in your credit score but over the long term it can cause problems and actually lower your score by making you look irresponsible to lenders.  Having a lot of new accounts shows you have a lower average account age, which affects credit scores negatively.

There are plenty of tips and tricks to raise your credit score, but it all comes down to two things:  paying your bills on time and paying down your outstanding debt.

I recommend purchasing your FICO score directly from the source at myFico.com.  You can purchase your score from many different places, but there are so many scams out there it’s not worth taking the chance to save a few measly bucks.  For a free annual credit report in addition to your score, check out annualcreditreport.com.