Improving Your Fico Score

By: Sherry Ridge

Years ago I would sometimes be asked about FICO scores. Students in our Transforming Debt Into Wealthâ„? workshops would want to know what it is, how they could improve it and what exactly they were being rated on. Today, with the television, print and online ads at what seems an all time high, from companies wanting you to pay for getting your score, I'm now asked these questions frequently.

I still maintain that the reason we want a high score is so that when we go to create new debt, we will be get a better interest rate. If we are not creating new debt, our FICO score is not that important.

But for many that our on their way to a debt free life, this score could help them if they use it to decrease payments and use the difference towards their debt. So let's look at what you can do to improve your FICO Score.

You are rated on the following:
?On time or late payments
?Credit availability
?Requests for new credit
?Longevity

On time payments will increase your FICO score and late payments will do just the opposite. Your payment history is one of the biggest factors used to rate you. Make your payments on time, consistently.

Your total credit available compared to how much you have owe is the second biggest factor used to rate you. If you have $20,000 available and your balance is $8,000 your score will be better than someone that has $40,000 and their balance is $35,000. Paying down your credit card balances helps with this. Also when you pay off your debts, do not close the accounts so that this ratio is lower, the lower this ratio the better.

Do not take advantage of every credit card offer you get, only open new accounts when you absolutely have to. When you apply for new credit, your credit report is checked and that stays on your record for about 24 months. What this means is that too many request shown does not look good for you. It can actually cause you to be denied credit, because your creditors could be wondering why you are requesting so much credit. This can really turn around and bite you if when purchasing home using a mortgage.

Your credit history, longevity is a plus for you, of course as long as it is a pleasant history (on time payments, etc.) Closed or paid off accounts will still be on your report and any late payments you made to those account will also be there. I recall the last time I requested my credit report, a Montgomery Wards (remember them) credit card I had from my early twenties was still on there. Opening and closing accounts will affect the aging used to rate you for your FICO score. So work to keep these to a minimum. Working with what you already have would be best, again paying down the credit you already have.

As always your credit score can improve by what you choose to do now and tomorrow. Always check your credit report at least annually, in the state of Illinois you are entitled to a free credit report. Visit the Attorney Generals web page of your state to see how and if you can as well.

You can find a Credit Scoring Booklet on my website www.sherrydebtfree.com.

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