6 Ways to Improve Your Credit

One of the important keys to living a wealthy life is to have a healthy credit rating in the form of a good FICO score. But as important as your FICO score is to your financial life, it’s also confusing to understand how it’s calculated and how you can improve it.

So, to help us out, let’s begin with a few basics. According to Creditboards.com:
• Your FICO score can range from 300 to 850. And you have 3 different FICO scores from three different credit rating bureaus – Equifax, Experian and TransUnion.
• A score below 500 is bad, a score in the 600’s is OK, a score in the 700’s is good and a score above 720 is basically great.
• The following factors basically determine your FICO. The percentages are how influential each factor is in determining your score.
- Your Payment History: 35%
- The Amount You Owe: 30%
- The Length of Your Credit History: 15%
- The Types of Credit You Have: 10%
- The New Credit You’ve Applied For: 10%

OK, so now that we have an overview of what your FICO score is and how it’s determined, what can you do to improve it?

1. Pay your bills. On time.
With about 35% of your score based on your payment history, late payments can destroy your score, especially recent late payments. So, always send in at least your minimum amount due, on time. If you know your payment will be late, call your lender and explain why. They might accommodate you once.

2. Don’t max-out your credit cards.
Try to keep your spending to about a third of your credit limit. This is your debt-to-available-credit ratio. If it goes higher than about 50%, your lender will notice and may take certain steps like raising your rate. So, just live within your means and you’ll be fine.

3. Build a strong credit history.
If you can show that you’ve been paying your bills on time over a long period of time, you’ll probably have a better score. To help show that you have a long credit history, try not to close older accounts. In fact, use older accounts at least once a year. If you need to get rid of some accounts, you might want to cancel some of your newer credit accounts.

4. Don’t try to boost your score by borrowing more money.
If you have good credit scores with a few different kinds of credit, that’s good. But don’t start borrowing money and paying interest just to try to improve your score. It’s not worth it because it counts for just 10% of your total score.

5. Don’t apply for a lot of cards.
Lenders don’t like it if you apply for a lot of cards. And even though new credit effects your score just 10%, that could be a very important 10%. If you want to look for the best deal on a card, then do it. But do your research before applying, because every line of credit you apply for stays on your credit record for at least 7 years.

6. Keep on top of your credit checks.
Your credit file is basically available to anybody – from employers to lenders to insurance companies. And each time a lender or insurer inquires about your credit history, that’s called a “hard inquiry”, and it’s recorded in your credit file. If an employer checks your credit file, that’s called a “soft inquiry” and it has no effect on your credit. So, know who’s inquiring about your credit file. Get your latest credit scores from Equifax, TransUnion and Experian. You can easily access these from myFICO.com.

Check these out and let us know what you think.