|
||
When you go out and apply for a loan, the very first thing lenders will do is take a look at your credit score. A good credit score will help them determine if they can trust you enough to get their money back. Credit scores are also referred to as FICO scores because they were established by the Fair Isaac Corporation (FICO).
To learn how to improve you credit score, you should first understand how such scores are obtained. The score depends on several factors.
Payment history (35%)
This includes the number of accounts you've paid as agreed upon, the negative public records or collections and any delinquent accounts.
Amounts you owe (30%)
The lender would look into the amount you owe on other accounts as well as the types of such accounts with balances. They also check to see if you have any open zero balance accounts.
Length of your credit history (15%)
Typically, the longer you have had a good credit history, the better your chances of getting a god score. One odd fact concerning credit history is that a person who has bad credit is actually more likely to get a loan that one who has no credit!
Types of credit used (10%)
How many different types of accounts do you have right now? A variety of account types can often generate a better credit score than having only one type of account. For example, you stand a better chance of getting a good score if your history states that you've taken out a car loan, housing loan and a credit card rather than just having a credit card to deal with.
New credit (10%)
This checks to see if you have been attempting to open numerous new accounts within a very minimal period of time.
So, how do you improve your credit score?
One way is to improve your credit history. Pay your bills on time. Some people prefer to take advantage of automatic payment of bills whenever possible. If you have past-due bills right now, get current and stay that way. If you're having trouble paying your bills, talk to your creditor and work out a payment arrangement with them. You can also seek help from a legitimate, non profit credit counselor if your situation gets out of hand.
For some reason, many people think that opening several accounts at the same time will help establish a good credit history. In reality, you're just sending a message to lenders that you might just be trying to revolve your debts around those accounts. For this reason, you should open new credit accounts only as needed.
If you've paid off an account, like a credit card, don't close it! People in the past have often been told to close credit accounts that aren't being used. However, having a current unused account with a zero balance actually helps you get a better credit score.
If you have had problems before, re-establish those accounts now. Show that you've learned from your financial mistakes by opening a new account responsibly and pay it off on time. This can really help raise your credit score in the long run.
It's alright to request and check your own credit report. This won't affect your score. Just make sure that you order the report directly from an authorized credit reporting agency.
There are a lot of other things to improve your credit score as well. Understand how the factors in determining your score come into play and work on how to improve each one. It's not too late to get good ratings!