Your credit score is a numerical gauge of your ability to payback loans. Anytime you want to borrow money or get credit, the lender will look up this score to determine the risk involved in lending to you. The higher the score the better, so if you get a credit report and see a high score that means your credit is good, right?
Pay your bills on time. That's the first advice you'll get when you're looking for ways to increase credit score. This tip seems really simple and obvious, but still many people underestimate its importance. What lenders want to know the most is if and how timely you have paid your bills in the past. That's why 35% of the credit score is based on your credit history. Delinquent payments and collections can severely damage your score. The more recent your payment problems are, the worse. So, in order to increase your credit score, start paying bills on time right now, and your score may already be higher after a month.
Keep your credit card balances low. High outstanding debt may reduce your score. If you max out your credit cards, your score may be lowered even by 70 points. Instead of having one card close to being maxed out, transfer the balance from this card to a few other cards, so you can keep your credit card balances at or below 25% of your credit limits. Paying off debt is even a better way to increase credit score, so if possible, do this, but...
Don't close paid-off accounts! Closing old accounts reduces your total available credit, which in turn changes your utilization ratio (the amount of your total debt divided by your total available credit). This may lower your score. Shutting down your oldest credit accounts shortens your credit history, which also makes you seem less credit worthy, therefore your score can drop.
Adding to the confusion is the credit bureaus themselves. Recently, Experian revealed that the national average credit score of its consumers is 678. This is very misleading to the average consumer. When you buy your credit report and score directly from Experians website, you are getting what they call the "PLUS Score," which is NOT a FICO score, and is NOT used by lenders anywhere. (Equifax is the exception--you can buy your FICO score directly from them at their website; however, the only place to get all three scores together is at http://www.myfico.com.) The 678 PLUS Score reported by Experian is actually the average of consumers' PLUS Scores, not their FICO Scores.
Other things that are used to calculate your credit score are the length of your credit history and the number of recent credit inquires by prospective creditors. The length of your history can be fixed by simply waiting for a period of time after you have opened your first credit accounts. That will lengthen your credit history. Credit inquires by creditors are known as "pulls" in the credit industry. There are 2 types; hard and soft. You need to be concerned only with hard pulls. They are generated when a prospective creditor checks your creditor. That happens every time you apply for credit, weather it's for a store card, a major credit card or a car loan. Every one of these will lower your credit score by about 5 points for 6 months, so if you're going to be financing a car or getting a mortgage in the near future, do not apply for other credit. The exception to this would be if you have no credit at all and are trying to establish a credit history before applying for your loan. If you know you'll be financing a vehicle or getting a mortgage in the near future, a little legwork on your credit score no could save you big money for years to come. So, stay away from late payments, but almost as important, you must keep you debt at manageable levels.
Pay your bills on time. That's the first advice you'll get when you're looking for ways to increase credit score. This tip seems really simple and obvious, but still many people underestimate its importance. What lenders want to know the most is if and how timely you have paid your bills in the past. That's why 35% of the credit score is based on your credit history. Delinquent payments and collections can severely damage your score. The more recent your payment problems are, the worse. So, in order to increase your credit score, start paying bills on time right now, and your score may already be higher after a month.
Keep your credit card balances low. High outstanding debt may reduce your score. If you max out your credit cards, your score may be lowered even by 70 points. Instead of having one card close to being maxed out, transfer the balance from this card to a few other cards, so you can keep your credit card balances at or below 25% of your credit limits. Paying off debt is even a better way to increase credit score, so if possible, do this, but...
Don't close paid-off accounts! Closing old accounts reduces your total available credit, which in turn changes your utilization ratio (the amount of your total debt divided by your total available credit). This may lower your score. Shutting down your oldest credit accounts shortens your credit history, which also makes you seem less credit worthy, therefore your score can drop.
Adding to the confusion is the credit bureaus themselves. Recently, Experian revealed that the national average credit score of its consumers is 678. This is very misleading to the average consumer. When you buy your credit report and score directly from Experians website, you are getting what they call the "PLUS Score," which is NOT a FICO score, and is NOT used by lenders anywhere. (Equifax is the exception--you can buy your FICO score directly from them at their website; however, the only place to get all three scores together is at http://www.myfico.com.) The 678 PLUS Score reported by Experian is actually the average of consumers' PLUS Scores, not their FICO Scores.
Other things that are used to calculate your credit score are the length of your credit history and the number of recent credit inquires by prospective creditors. The length of your history can be fixed by simply waiting for a period of time after you have opened your first credit accounts. That will lengthen your credit history. Credit inquires by creditors are known as "pulls" in the credit industry. There are 2 types; hard and soft. You need to be concerned only with hard pulls. They are generated when a prospective creditor checks your creditor. That happens every time you apply for credit, weather it's for a store card, a major credit card or a car loan. Every one of these will lower your credit score by about 5 points for 6 months, so if you're going to be financing a car or getting a mortgage in the near future, do not apply for other credit. The exception to this would be if you have no credit at all and are trying to establish a credit history before applying for your loan. If you know you'll be financing a vehicle or getting a mortgage in the near future, a little legwork on your credit score no could save you big money for years to come. So, stay away from late payments, but almost as important, you must keep you debt at manageable levels.
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Frank Miller has a Debt Consolidation Blog & Finance, these are some of the articles: Private Money Lender - A Property Investor's Mate You have full permission to reprint this article provided this box is kept unchanged.
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