How do I Increase my FICO Score?

We all want a higher credit or FICO score. It helps to get additional credit, usually at better rates. How do we raise our personal FICO score? That’s a question I get every week in my workshops. Here are some of the best strategies for raising your FICO score:

• The two simplest strategies are making your payments on time and paying down any outstanding balances. Each time you make a payment on time your score goes up. Don’t let any credit debt get near 30 days late. Also, whenever a balance is paid down, especially on credit cards, your ratio of used vs. available credit goes down, thus, raising your FICO score. Keeping your cards’ outstanding balances at less than 30% of the available balances on each will maximize your FICO Score.

• Another tip is not to close old credit cards. If it does not have a balance, consider using the card for a small transaction once or twice a year and pay it off immediately. This will help your credit payment history and the lack of an outstanding balance on the card will improve your capacity to borrow. This relates directly to your ratio of used vs. available credit. The higher the amount of available credit, the higher your score.

• Two things happen when we close old cards, the history they built for us over the years goes away after a short time and the available balance is removed from our overall available credit, limiting our current borrowing capacity and reducing our FICO score. Close old credit cards at your own risk.

• Avoid too many new credit inquiries. If you are trying to increase your FICO score, avoid applying for new credit cards or loans too often, especially those at a department store. Each application you sign means a hit on your score. Multiple applications mean multiple hits. Many businesses will offer you a discount for applying for their particular card. Your credit score will benefit if you just say No!

• Another strategy is to move your revolving debt to installment debt; essentially going from a variable account to a fixed rate/fixed payment account. You would be changing your variable revolving credit account to a fixed payment personal loan. The highest scores include both revolving and installment debt. This is what takes place when someone does a bill consolidation, changing variable interest debt to fixed rate fixed payment debt.

• One of the easiest and most direct ways to raise your score and your credit history is to get a secured loan from a credit union that will report your loan payments to the credit bureau. These are often referred to as share loans. As you are borrowing your own money, a high FICO score is not required. Not all CU’s report to the credit bureau on these types of loans, so you have to shop for them. Essentially, one opens a savings account and takes out a loan on their money in the account. As they pay back their own money, they will build their credit score. This can also be done with a secured credit card account with your CU. Mismanage either of these programs and you will lose your deposit and possibly do damage to your credit score.

• Banks offer savings account loans but, generally, they will not report your payment history to the credit bureau as credit unions do.

Finally, the key, the thing that will make the biggest difference for you in building your credit score -  is Time! Utilize these strategies and be patient. Rome was not built in a day, neither is your credit score. Your personal history of proper credit usage is important so take the time to do things right and make your payments on time, pay down balances, and utilize your old cards as you should to maintain them. Proper maintenance of your credit over time will result in a nice fat credit file and a high score.

Tips to understanding your FICO score

http://www.myfico.com/downloads/files/myfico_uyfs_booklet.pdf

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