How To Increase Credit Score In Three Simple
Steps
Depending on your credit situation you can increase credit score by building a credit history, maintaining a good credit history and repairing your bad credit rating.
If it looks like a common sense to you, it actually is.
What you're actually doing is "managing creditworthiness." Here you want
to control your FICO score -- the industry standard of credit scoring --
because it determines your credit ability.
Lenders use your FICO credit score to determine your interest rate and
the amount of a loan. The higher your credit score the better the loan
terms you'll get. So, taking care of your score, and keeping your credit
clean will obviously save you money in the long run.
Three Simple Steps To Increase Credit Score
Preserving your FICO score, and
improving it, is not difficult, but it may take time. The following are
some tips to maintain and increase credit score, based on three credit situations.
Building a Credit History
If you have no credit history, your FICO score is likely to be low. The
easiest way to raise your score is acquire a loan, and pay it off on
time. Because installment loans are weighted more heavily than credit
cards, you will improve your credit score faster if you buy goods with
an installment loan.
Another way to build a credit history is to use $1000 and open a 6 month
CD account at your bank. You can then get an installment loan for $1000,
using that CD as collateral. With the loan, open another 6 month CD
account at another financial institution. As same as at your first bank,
take a $1000 loan at the second institution. Do this one more time.
Now, with your 3 loans make the minimum payment for 6 months. In the
last month, cash out your CDs and pay the loans off. This way have built
your credit history, and you didn't need a long term debt to achieve it.
Maintaining a Good Credit History
Once you've paid your bills on time and don't have high credit card
debt, you can increase credit score by keeping your old accounts open.
One factor that influences your credit score is your credit capacity,
which is the amount of credit available versus amount of credit used.
Closing old accounts increases your used credit capacity that is
translated into a lower score.
Next, improving your monthly payments of your credit cards. Since your
credit card company reports your credit information monthly to credit
bureaus, there is a chance that you carry a balance every month, especially
if they report it before you pay off your card. You may find your FICO
score improves if you pay off your credit card at a different time of
the month.
Repairing Bad Credit History
If you have a bad credit history, there are things you can do to improve
your score. Because the most significant component of your score is your
payment history, you can start repairing your credit history by paying
your bills on time. Additionally, you can increase credit score by
paying down your credit cards because how you use credit is the next
important portion of your FICO score.
The final thing to look for is errors in your credit report. Get a copy
of your credit report from all three credit bureaus -- Equifax, Experian,
and TransUnion -- and look at all the entries. If you find any errors, take
steps to have the inaccuracies removed. Here calling your creditors may
also help removing negative information.
So, your FICO score is an important benchmark of your financial life. If
you use the above steps to increase credit score you'll get lots of
saving potentials from lower interest charges. However, remember to
consult to a financial advisor before you make any
drastic change. Not only will he or she help you repair your credit
report, he'll also help you discover the underlying
causes of your low credit score.
