Your FICO score, named after the Fair Isaac Corporation that established it, is a measure of your credit worthiness. Since it is used by most lenders to decide whether or not to offer you credit, and if so at what interest rate, it makes sense to do whatever you can to improve it.
Here are three tips to help you improve your FICO score, and with it the potential for you to be offered loans or credit at relatively low interest rates. These tips provide information on some important steps you can take, but are not all that can be done. They are therefore followed by a few other things you can do to improve you credit score even further.
1. Scrutinize Your Credit Report
Get a copy of your credit report and scrutinize it carefully. This report contains the raw data used to calculate your credit score, and if it contains errors, then your FICO score could be artificially low.
Apply for copies of your records from the three main credit reference agencies, Experian, Equifax and TransUnion. Make sure you understand all the credit you have, and what the report is saying about your repayment history. If you come across any errors, or records you believe to be inaccurate, then contact each bureau and have the records amended.
For example, other people may have been staying with you at some time (ex-partners, friends, lodgers, relatives or even your own children) whose credit records are still registered with your address. You have a legal right to have them removed.
Make sure that the amounts registered that you still owe are accurate, and that no late payments have been wrongly entered. The credit records of most people are believed to contain at least one error that could affect a FICO score.
2. Reduce Your Debt
You can improve your credit score by taking steps to reduce your debt. It might not be easy for you, but you can make a start by stopping using your credit cards if you still have them. Don’t cut them up, but simply stop using them. It is better for you to still have live cards that you are not using than to cancel them.
Make a point of always making repayments on time: figure out how much money you need to make at least the minimum payments, and budget your expenditure to include these sums. If you can maintain payments to each of you creditors, then your FICO score should not drop – and might even increase.
3. Reduce your Available Credit to Utilization Ratio
Also known as your utilization ratio, this is the ratio of your expenditure to your available credit (your spending limit). For example, if your credit and store cards have a combined limit of $50,000 and you have spent $30,000 of that, then your utilization ratio is 60%.
If you have a credit card you have not used for a few months, make a payment with it. Card issuers tend to stop reporting activity of such cards to the credit bureaus. By reactivating a card you have rarely used, your utilization ratio will likely improve and so might another relevant factor: the length of your credit history.
You can reduce your credit utilization ratio even further by increasing the credit on your cards. If you have not had any serious problems with your bank or credit card issuer, then a simple phone call might enable you to increase you credit limit – from $5,000 to $7,000 for example, or even more. This will immediate reduce your credit utilization ratio, and so also increase your FICO score.
Other Actions to Take to Improve Your FICO Score
While these three factors will definitely have a positive effect on you credit score, there are other things that you can do to improve it even further. If you have more than one card, split the balance between them all so rather than have one card maxed and another at 25%, make them both at 50%. The more credit cards you have, the easier this will be to do.
If you have a low FICO score, do not take some advice you may be given to apply for new credit to reduce your utilization ratio. This will likely work against you. It is possible to become an authorized user on somebody else’s credit card, such as a family member but not use it. It might work, but it is better if you can improve your credit score without doing this.
You can improve your FICO score by correcting any errors in your credit record, or credit history, and then by following the advice offered above. It will take time, but it is possible to improve your credit score by demonstrating that you are improving your financial situation in a progressive and sustainable manner.