Your credit score affects your life in so many ways, from being able to buy anything to starting a business with a self employed loans or even a funding hobbies and transportation. If you are getting repeatedly denied for loans for aren’t happy with your interest rate options, then it’s time to start working on improving your credit score. Building credit is a lifelong process, but there are a few things you can do to move things along.
What is a FICO Score?
FICO stands for Fair Isaac Corporation and is a universal credit score that credit lenders utilize to assess the credit risk of an individual and to decide whether or not to extend a loan. It takes many factors including your payment history, credit utilization, outstanding debt, and collections or bankruptcies. The information is reported to 3 major credit bureaus: Equifax, Experian, and TransUnion. Some creditors use one or two, and some check all 3.
What is Good Credit?
Excellent = 750+
Good = 700-749
Fair = 650-699
Poor = 600-649
Bad = Below 600
How to Improve Your Credit Score
- Check the accuracy of your credit report. A recent study done in 2012 by the Federal Trade Commission found that 1 in 5 credit reports had an error. It’s more common than you would think. One quick way to boost your score is to dispute inaccurate information on your credit report. You can get your credit report for free from many sites (including any major credit cards you have), but a common one is Free Annual Credit Report. You can dispute errors like missed payments that were actually made on time, a collection that isn’t yours, or maybe you have a credit account that isn’t being reported. If it’s a mistake on all 3, you will have to dispute it separately with all 3 reports.
- Pay down your credit cards. Credit utilization makes a big impact on your credit score. It is the sum of how close to your limit you are on all your cards (it’s averaged). If you’re at max or close, that signals to creditors that you may be higher risk. A rule of thumb is to keep your credit utilization under 30%, which means keeping your balance on all credit cards under 30% of your limit.
- Open a secured card. If your credit is hurting, opening a secured card is a good way to build your payment history. A secured credit card requires a deposit, so it’s easy to get even for people with bad or no credit. You can pay every month on time to help improve your payment history, which accounts for 35% of your credit score.
- Limit your credit inquiries. Every time you apply for a loan, credit card, mortgage, etc, you get a hard inquiry on your credit score that stays there for a year. If you apply for a lot of credit, even if you aren’t always approved, it adds up and also raises a flag for lenders.
Since credit takes a while to build, it’s important that it is an ongoing endeavor to keep your score high. You can take steps to bump it quickly, but the long term work you put in will be the bulk of your score and can affect you for years, at least seven (which is how long negative marks can affect your credit.)
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