Tip Your FICO Score in the Right Direction!
Want the best interest rate on a car or home loan? Then make sure your FICO score (a number most lenders use to assess risk) is high enough. Scores range from 300 to 850, but to qualify for good loan, it should be at least in the mid 600s. If it’s not quite there, don’t worry – by understanding how a FICO score is determined, you’ll know how to tip it in the right direction.
Payment History: 35%
How you have paid all past obligations is of critical importance to a credit score. If you’ve made payments late, had accounts go into collections, been sued for a debt, or filed for bankruptcy, your score will suffer. How recent, frequent, and severe payment problems have been count heavily. In other words, one skipped payment five years ago will matter far less than consistently paying your bills very late or not at all.
Tip: Pay on time, every time, and satisfy old debts.
Amounts Owed: 30%
Even if you have a perfect payment history, if your balance is at or near your credit limit your score will head south – fast. Your total debt, the types of accounts you have, and the number of accounts you have are also factors in your score.
Tip: Delete your debt and keep balances well under the credit limit.
Length of Credit History: 15%
New to the world of credit? If so, this category will not be fulfilled until you have a history of using it. After all, the longer your credit record goes back, the more accurately a creditor can assess risk.
Tip: Establish or reestablish credit with a secured credit card.
New Credit: 10%
Of course you must apply for credit to get it, but do so carefully. The number and types of recently opened accounts count. Don’t worry about those pre-approval letters though – unless you actively apply, they are not held against you.
Tip: Only apply for accounts you truly need.
Types of Credit Used: 10%
Finally, the types of credit you have also have an impact. The number of various kinds of accounts (such as credit cards, retail accounts, installment loans, mortgage, and consumer finance accounts) are factored into your score.
Tip: Have and use (responsibly) a variety of credit instruments.
By making fairly simple changes to the way you treat your debt obligations – and focusing your attention to the areas that need it – you can increase your score in less time than you may think!