Once upon a time you could walk into a bank and get a loan on a handshake and your honor. This was when you actually dealt with a person and were seen as more than a number on a spread sheet. Now it?s all about your FICO score.
We can talk about several ways to review your credit but to keep it simple we are going to focus on the credit model created by Fair, Isaac Company. Better known as FICO.
Your FICO score is the method used to determine the interest rate as well as how much credit a bank or lender is willing to give you. the cleaner the credit…the lower your rate and larger the sum you qualify for.
Preserving your FICO score, and improving it, is not difficult, but it may take time. Here are some tips to maintain and improve your score, based on three credit situations.
FIRST: Get a copy of your Credit History
You may not have a history for several reasons. Maybe you pay all your bills with cash, maybe you?re a student, maybe you have never needed a loan for anything. All this will have an effect on your history. Don?t be upset…if you?re like most people you will get a credit history far sooner than later.
The easiest way to raise your score is acquire a loan, and pay it off on time. In general, installment loans are weighted more heavily than credit cards. In other words, you will improve your credit score faster if you buy goods with an installment loan, rather than acquiring a credit card.
Another way to acquire a better credit history is to take $1000 and open a 6 month CD account at a financial institution. Now, get an installment loan for $1000, using that CD as collateral. Now, here’s the trick. Take the $1000 loan, and open another 6 month CD account at another institution. Take another loan for the $1000 at the second institution. Do this one more time.
In the end you have 3 loans. Pay the minimum payments for 6 months…then cash out the CD’s and pay off the loans in full. Now you have a credit history.
SECOND: Keep your credit history clean.
Ok…now you have a good history. No major debt…now to keep the FICO as high as you can.
You don?t need to close old accounts. (Unless you?re being charged a fee to keep the account open.) Part of the FICO formula is based on the amount of credit available vs. how much you have used.
Another thing to be aware of is how you manage your money. Here?s the scenario: you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here’s what happens – your credit card company reports your credit information monthly to FICO. However if they report it on the day before you pay it off…the credit agency sees you carry a balance every month. If you can try changing the days you pay off your credit card.
THIRD: Fix your bad credit
Ok we all at some point have poor credit history. However you can improve your score. It takes time but can be done. If you?re really unsure of the steps you need to take contact a credit counselor. You can find several good services offered online.
The FICO score is most affected by your credit history. To repair a low credit score start paying your bills onetime. In order of value you need to pay your Mortgage, Installment loans, and last your credit cards.
The next factor in your FICO score is how you have used your credit. So pay off those credit cards
When you?re all done with the rest of things…review your credit report. Get one from all the credit agencies. Look for errors and mistakes. Contact them to see if they can remove them or correct the errors.
A strong, healthy, and clean credit score is a major part of your financial world. Keep it clean and don?t risk it. A good score can factor into things you can’t imagine. Don?t damage your score if you can help it.
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