How to raise your credit score: 5 Tips to improve my credit score
68Improve my credit score: How long does it take?
Even though you can't improve your credit score overnight, you can do so fairly quickly. The formula used to calculate the score gives more weight to recent activity. So, even after a few months of "being good" with your payments, you will see an improvement.
Understanding your credit score rating
The majority of people have credit scores
of 700 and above, which is considered a good credit score. If your score is 720, there is no point in trying to improve it any further it because creditors lump you in the same
category as people with a score of say 780 or 825. At 720, you are viewed as a
safe consumer and normally you will be able to get a loan without problem and on good terms. If your number is lower than 700, it's definitely worth your time to
try and raise it a little.
Here is how a FICO score is calculated :
- 35 % History of your payments: A long history making of payments
on time and no missed payments on all credit accounts is critical for achieving a good score.
- 30 % Amount you owe: What you owe is compared to the total amount of credit available to you.
- 15 % Length of credit history: Generally, a report
containing a list of accounts opened for a long time will increase your credit
score.
- 10 % New credit applications: Applying for and opening several new credit accounts in a
short period of time can lower your credit score. Inquiries made in any 14-day
period count as just one inquiry, as this is considered rate shopping.
- 10 % Types of accounts in use: Lenders prefer a good mix of credit cards, retail accounts, student loans, car loans, and mortgage loans.
How to raise your credit score: 5 Tips
- The most important factor weighted when calculating your FICO score is your payment history, so making an effort to pay your bills and loans on time is going to have the largest positive impact.
- However, the quickest way to raise your score is to pay down balances and/or increase your credit line. You can increase your credit line by calling your credit card company and asking for higher limit or applying for a new card. This will bring down the total amount of credit you're using relative to how much credit you have available to you. FICO scores formulas favor consumers who use a smaller percentage of their available credit. Some people suggest never using more than 50 percent of your limit on any card. Of course, you must resist the temptation to use the higher credit limit available to you. Also, you should not apply for too many cards at one time, as the new credit inquiries will bring your score down.
- Avoid opening a lot of new accounts at once - this makes lenders nervous - especially if you don't have a long credit history. General recommendation is to have fewer than five cards. If you wish to close some credit accounts, close the newer accounts first. But don't close too many accounts at once because this will lower your ratio of debt to available credit.
- Use all of your credit cards, but keep their balances low - a credit account that is not used will not help your score.
- If you do have a late payment, you might try calling the
creditor to see if they will be wiling to delete this information from your file. You may also try to disputethe late payment report or any other negative information that is in your file. While
it's in dispute, the item will stay on your credit report but will be excluded from the score calculation.
Although it cannot be denied that a good credit score is important, remember that FICO scores do not take into other important account factors that lenders look at, such as your age, income, assets or employment.
Specific lenders may pay closer attention to income, assets and employment history. Also, when the credit score is computed, all late payments have the same importance. In real life, a lender will give more weight to your history in the same industry, for example, a car loan provider, for instance, can look at customized scores tailored for auto industry. So even if you've been late on credit card payments but never missed a car payment, they may take this into consideration.
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