There are hundreds of variables that go into calculating a credit score. Your credit score represents how well you’ve managed your credit history over time. One thing about credit history is that you have the power to change it. If you have not managed your credit history well in the past, make 2016 the year you get back on track. You’ve got about 6 months left in the year so make them count towards improving your credit scores.
1. Reduce credit card debt.
The smaller your percentage of debt compared to your available credit the better. That’s because in the calculation of your FICO score, how much money you owe to lenders is the second most important factor in calculating your credit score. Reducing the amount you owe will raise your FICO scores. Owing 30% or less of your available credit limit is a good measure. But if you want the best scores owing 10% or less is even better. If you owe $100 on your credit card and have a $1,000 credit limit on it, your ratio is 10 percent which will help raise credit scores.
2. Pay at least the minimum on time.
Paying your monthly bills on time can help improve your credit score. Your payment history accounts for approximately 35% of your score. Consistent on-time payments will make the difference in good or bad FICO scores. When you think you are going to be late contact your creditor to arrange a payment and ask that it will not be reported to the credit bureaus. It is not uncommon to experience financial difficulty from time to time. Your creditors know this and may be willing to work with you to maintain your credit scores.
3. Maintain a small balance on credit accounts.
The biggest contributor to your FICO credit score is payment history so when you pay off debt completely it does not demonstrate how well you manage credit and debt. Having no debt is good but it may mean you have nothing reporting monthly to the credit bureaus. There should be at least 3 or 4 credit accounts currently reporting in your credit history. It could be a mortgage, auto, personal or student loan along with a 2 or 3 credit cards with low balances. If you don’t want to carry any debt at least charge your gas or groceries to your credit card a few times a month then pay in full.
4. Credit variety can help raise credit scores.
Having credit cards and installment loans with a good payment history will help your credit scores. If your credit history has been limited to only one type of credit it does not show how well you manage your overall credit picture. Installment loans can be a mortgage, car or personal loan and even a student loan is considered an installment loan. If you are unable to qualify for a personal loan consider a secured personal loan from a bank or credit union. They report to the credit bureaus just like an unsecured personal loan.
5. Have something positive for FICO to calculate.
Some people just don’t like dealing with credit cards and it’s a reasonable position. They do not want to owe anyone. But people with no credit cards tend to be viewed as a higher risk than people who have managed credit cards responsibly. You cannot expect to have a high FICO score with little to no current credit accounts reporting to the bureaus. It’s just not going to happen. What you do with your credit history directly reflects in your FICO scores.
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