3 easy ways to increase your credit score
by: DocSchmyz |
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It used to be that "people" made decisions about your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Those days are long gone, and now a single number - your FICO score - determines your credit worthiness.
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.
Keeping your credit history in good order and improving your rating is not a hard thing to do...but it will take time. Here are a few ideas how to do just that.
FIRST: Get a copy of your Credit History
There are many reasons you may have no credit history. Maybe you're just starting out, maybe you pay cash for everything and have never needed a loan. In any case, if you have no credit history, your FICO score is likely to be low.
An easy way to improve your credit history is to get a loan and pay it off onetime. A loan such as a car loan (also known as an installment loan) is generally looked at as more important, and given more value, then a credit card loan.
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.
Let the CD's mature, paying only the minimum for the 6 months. Once they mature you cash them out and pay off all three loans. Congratulations...you now have a credit history.
SECOND: Keeping your history in good standing.
So we now have a good history. How do we get the score higher?
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: Repair Your Poor Credit History
At some point there is a very good chance you will have something that causes your credit rating to drop. Don't panic...poor credit can be fixed. Understand however that the process takes time. In some cases you may need to talk to a credit counselor to assure you address the reasons for the drop as well as remove any future habits that may cause it to drop again.
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
At the end of all this, make sure you review your credit report. Get one report from all three credit agencies. Read every page. (I know it reads like stereo instructions in Greek) Look at the entries and call and contact the creditors to have them remove any errors.
A good FICO score is a huge part of your financial life. Keep it healthy. Use these tips and watch your score climb.
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About the Author
Doc Schmyz has invested in Real estate all over the U.S.. His website gives hundreds of investors up to date real estate investing information Get more info from across the U.S. on Doc's real estate investing resources page.
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