Your
credit score can open the door to financial freedom or it can slam it shut in
your face. Your credit score is used by banks and financial institutions to determine
if you qualify for loans and how much you'll pay in fees and interest. It can
affect your ability to buy a home, car or other large items you can't afford to
pay for with cash. It could also prevent you from having credit for everyday purchases
or emergency situations. Your credit score
is a relative measure of your creditworthiness and can range from 300 to 900,
with most people in the 600 to 800 range. Credit scores are compiled using the
Fair Isaac Corporation's FICO system. Here are the ways your FICO score is calculated
and how to use them to your advantage: 1.)
Create a Good Payment History
Your payment history makes up 35% of your
credit score. Every late or missed payment you make on any type of loan (credit
card, mortgage, student loan, auto loan, etc.) will reduce your score. Paying
on time is a MUST. Use the lenders online services, if available, to send email
reminders when your payments are due. If that's not an option, highlight your
personal calendar to reflect upcoming due dates. Do whatever it takes to be ahead
of the game when it comes to payment due dates. 2.)
Adjust Your Outstanding Debt
The total amount of debt you carry makes
up 30% of your credit score. A comparison is done between the total amount of
available credit you have and how much of that limit you've used. If you're using
50% or more of your allowable credit it will reflect poorly and lower your credit
score. Carry no more than 35% of your available
credit. When you reach the 50% mark, lenders begin to worry that you're in financial
trouble due to your large percentage of debt. Use cash more often to keep this
figure in check or use a credit card with more available credit. 3.)
Limit Credit Inquiries
Requests for credit, or credit inquiries, make
up 10% of your credit score. Every time you apply for a credit card or loan, the
lender requests a copy of your credit report. If there's too many requests in
a short period of time, it reflects poorly on your credit score since you appear
desperate to lenders. Be patient when applying
for credit. If you don't get a response after a week, call the lender and ask
if your application has been processed and for the results. Apply for another
offer only after you've determined that the first was denied. If you're denied
multiple times, maybe it's time to take a step back and determine the cause rather
than applying again. 4.) Use Multiple Types
of Credit
The variety of credit types you carry reflects 10% of your credit
score. Having different types of retail accounts, loans and credit cards will
reflect positively on your credit score. Although it's not necessary to have one
of each type, having a wider variety will reflect your ability to manage various
types of credit and will help raise your credit score. 5.)
Length of Credit History
The length of your credit history has a positive
affect on your credit and makes up 15% of your credit score. Although there's
not a whole lot you can do to increase the time you've been using credit, if you're
thinking about closing old credit accounts for any reason-- think twice-- since
keeping them open will show a longer credit history and help maintain a higher
score. Other Actions to Raise Your Credit
Score Increase your credit limit.
This can be as easy as calling your bank or credit card issuer and asking for
an increase. If your credit is good and you have a long-standing account with
no history of default, it should be relatively easy to get your credit limit raised.
With a higher credit limit, your debt ratio will decrease - helping to raise your
credit score. Check your credit report.
Get a copy of your credit report at least once a year. Report all errors and stick
with it until they're been resolved. Fixing errors on your credit report can have
a huge impact on repairing your credit. Find out how you can get a FREE
Credit Report here... Apply for a secured
credit card. Without a credit card, you'll have a hard time building a positive
payment history to raise your credit score. But getting a credit card can be especially
difficult if you have poor or no credit. Secured credit
cards are great opportunity to improve your credit score - even if you have
bad credit. You might pay more - but a secured card
could get you back on track faster.
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