A FICO (Fair Isaac Corporation) score helps lenders examine credit history to decide what kind of rate to give borrowers. Scores range from 300 to 850 with 687 as the mean score. Scores are created from a myriad of factors such as payment history, debt, credit history, new credit and types of credit. Lenders typically assign a higher rate to borrowers with a FICO score of 600 or below because a low score equates to a higher credit risk. Although slightly above 600, a score of 609 raises red flags with lenders. Take a few simple steps to raise your score to 620 but aim for a higher score to obtain a lower rate.
Review your credit report to ensure that the information is correct. Sometimes credit bureau reporting is inaccurate. For example, old debts that have been paid can show up on your current report and diminish your score.
Use the Federal Trade Commission website (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm) to request a copy of your credit report. The site provides access to several different reporting agencies.
Contact the credit bureau to revise and update your report if you find inaccuracies or want to dispute a claim. Typically you can either contact the creditor directly or submit a dispute letter to the credit reporting agency. Request an updated report to ensure that changes and corrections were made.
Pay all of your bills on time. Your payment history makes up 35% of your score, so it is imperative that you pay bills by their deadline. Review monthly invoices and determine which bills are falling by the wayside. If you are having trouble paying all of your bills on time, contact your creditors to work out a new payment system or seek credit counseling.
Maintain a low credit card balance. Debts and debt history is 30% of your score. Keeping your monthly balance manageable will not only help you get monthly bills under control but will have a positive affect on your credit score. Aim to keep your balance at least 30% below your card’s limit.
Don’t open new credit cards while trying to increase your score. New credit is 10% of your score, and opening several credit card accounts at once can have negative implications.
Every time you apply for new credit, the card issuer must contact the credit bureau, which records an inquiry on your report. A few inquires on your report will not impact your score; however, a multitude of inquires resulting from new revolving credit lines will lower your score.
Review your credit report twice a year to confirm information and ensure that your credit score reflects your activity.
Ask your lender if he or she has any suggestions on how to increase your score—sometimes your financial institution can offer ideas.
Gina Ragusa has made a career out of writing for the past 15 years, with an emphasis on financial institution writing. Ragusa has written for Consumer Lending News, Deposit and Loan Growth Strategies and Community Bank President. She earned her Bachelor of Arts from Michigan State University.