Credit scores are an important part of your financial life, as they determine how much you can borrow. The higher the score -the better! A Fico Score should be about 700 or more for good credit- though many people have them well over 800 now thanks to these simple techniques: maintaining a low amount outstanding on their card accounts every month; always making payments when due regardless of what day it falls on (don’t just put ’em off!) and finally, paying down any debt with the highest interest rates first so those debts don’t weigh heavy onto future applications.
What Makes Up Your Credit Score?
Perhaps you already know what makes up your credit score, but it’s worth mentioning. There are five major credit bureaus (the company’s that hold onto your personal data and financial history related to loans and other credit accounts) and they all use the Fair Isaac Corporation’s FICO scoring model. The factors break down as follows:
35%: Payment History -Are you paying back your debts on time? If so, this is a positive thing! Late payments will hurt tremendously, however. In addition, if any debt has been sent to collections agencies- look out!
30%: Debt/Budgeting -How much of your available credit have you been using? It would be wiser to keep it at 20% or less, but going over 30% will decrease your score.
15%: Credit Utilization -The same as Debt/Budgeting, this refers to how much credit you have extended to you. If you never open new card accounts and keep adding to them, this factor won’t matter too much; also if the total available credit of all your cards is low (less than $1,500 or so) you shouldn’t really run into any trouble here.
10%: Length of History -How long has it been since you opened a card? The longer it’s been since opening a new account the better off you’ll be; more history means a higher chance that someone can track trends in payment and debt behavior (for example: did you use to be late but now you pay on time?).
10%: Type of Credit -This refers to what kinds of cards you have. If, for example, you only have store credit cards your score will suffer because they are looked at as low quality. However, if you have multiple types (and especially different issuers), this factor won’t matter too much.
The maximum number of points attainable using the FICO scoring model is 850.
It’s easy to have a low credit score. You can have a low score by default, be the victim of identity theft, miss a payment on a student loan or car note, or even just have an overdue bill!
However, if you’re looking to take out a loan– say, for example, for an upcoming vacation as summer draws closer — it will affect your borrowing power. In order to secure lower interest rates and save yourself some money in the long run, you’ll need to make sure your credit is up-to-date and squeaky clean. This will help increase credit scores quickly.
Fortunately, there are a number of ways to fix your credit.
How to Increase Your Credit Score Quickly
PAYMENT HISTORY CORRECTION WITH EFFECTIVE CREDIT REPAIR DISPUTES
(+/- 100 point score increase)
Here you want to make sure your credit report is clean of any kind of questionable negative payment information. Most credit repair companies just are limited to simple credit challenges but there is much more than can be done to rectify negative information on your report. May they be collections, late payments, liens, judgments, tax liens, each can be addressed in a surgical manner using the appropriate tactics below:
A) An effective credit bureau dispute letter: Utilizing this approach, you can dispute items with each of the 3 credit bureaus. This method is primarily effective for any negative information that may have fallen behind about 4 years ago or longer.
B) Advanced collection settlement techniques: If you have recent collections on the credit report which are valid collections, these are not likely to come off with credit bureau disputes, hence you want to utilize a pay for delete technique to ensure removal of these accounts.
C) Direct creditor disputes: If there are recent late payments or charge-offs resulting from a final missed payment, you will have to engage the creditor directly in a strategic dispute to get them to remove the negative reporting of the tradeline.
D) Victims of Fraud and Identity Theft: There’s a special procedure to remove fraud-related items from the credit report.
CREDIT CARD CAPACITY OPTIMIZATION BY PAYING DOWN CARDS:
(possible to increase credit scores up to 60 pts)
It is important that you pay down all your revolving account balances to a zero balance, but do not close these accounts. (i.e., keep them low and limits high). Leave only one card with around 2% of the entire credit limit open in order to make sure there are enough funds available for emergencies because this will help avoid any unnecessary fees or interest charges if something does go wrong!
LENGTH OF CREDIT & NEW CREDIT OPTIMIZATION:
(possible score increase up to 40 pts)
A) Minimize new accounts, do not open any credit accounts unless necessary or if you are looking to diversify your mix of credit accounts.
B) If you are transferring balances due to an offer from a new credit card company, a better strategy than getting a new credit card is to ask your current credit card lenders if they have any existing offers.
C) If you have closed some revolving accounts recently, a better strategy than opening up new accounts would be to call the lenders where you closed the account and see if they can re-open the same accounts and are able to keep the original open date.
DIVERSIFYING TYPE OF CREDIT ON YOUR REPORT:
(possible score increase up to 20 pts)
If your credit report is missing either an installment loan or a credit card, then opening up such an account will add to the diversity of your credit report.
Bonus Tips for Maintaining Healthy Credit Scores
1. Open a small credit line first before opening up higher limits. This will help establish your credit score which takes into account the length of time you have had credit accounts open.
2. If you have credit scores in the mid-600s or lower, get a secured credit card that can help you improve your credit score in 6 months or less.
3. Take out a suitable credit line to match with the right income level for you. This allows you to optimally manage your credit line.
4. Make sure that the monthly payments are affordable for you so you do not pay unnecessary interest.
5. Get your credit score from all 3 credit bureaus, once a year to monitor any changes and correct them.