In the old days the “man behind the desk” decided to give you a loan or not. Your handshake was the contract and your honor was the collateral. Now however the “man” has a name…the name is 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 credit score can be used to determine your interest rate and how much credit a lender will give you. So taking care of your score, and keeping your credit clean will save you money.
Getting and improving your credit score is not hard at all, just takes time. Here is a tip or two that will help you improve and increase your score.
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 option is to take a $1000 and open a 6 month CD at a bank. Now turn around and get an installment loan using the CD as the collateral. You then take that $1000 loan and do it again at another bank. Do this for a total of 3 times.
Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.
SECOND: Maintain Your Good Credit History
Good job – you have paid your bills on time, and do not have high credit card debt. Here’s some ideas to keep your FICO score as high as possible.
Make sure you don’t close your old accounts. (Unless of course they charge you a fee of some sort to keep it open.) Part of your credit score is based on the amount of credit available vs. amount used. If you close old accounts you may impact this part of your credit.
Something to think about. The day of the month you pay off your credit card may have a lot to do with your FICO score. Let?s say 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, but they report it on the 10th of the month…and you pay on the 15th. This would cause the credit agency to see you carry forward a balance every month. Try changing the payment times…just is sure NEVER to pay late.
THIRD: Repair poor credit
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
One final thing to look for is errors in your credit report. Get a copy of your credit report from all three primary agencies, and look at all the entries. You can find the agencies here: experian.com, equifax.com, and transunion.com. If there are any errors, start the process to have them removed. Call your creditors – sometimes they will remove negative information.
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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{ 2 comments… read them below or add one }
Hi, enjoyed your article.
Using CD’s as collateral to obtain installment loans are a great way to re-establish your credit. It used to be called the ’round robin’ strategy.
Its amazing to see how this FICO score has dominated and changed the way business (financial) is done. It really begin to become a major force every since Fannie Mae & Freddie Mack government agencies began recommending lenders use the FICO credit model to help determine loan eligibility in 1995. The business of face-to-face loan decisions began to go the way of the horse and buggy.
Christopher Wright, Financial Cancer Specialist
If you’re struggling to make ends meet right now, there are tips you can use to work with your creditors so the effects don’t trickle down to your credit report.
To get this free report with great tips on working with your creditors during this difficult time, visit http://AvoidingCreditTrauma.com?14
Hope this helps!