How To Increase Your FICO Score

Your FICO score is the measurement that the three credit rating agencies, Experian, Equifax and Trans Union use to determine your ability to qualify for a loan as well as the interest rate that you will pay for that loan. FICO scores range from three hundred to eight hundred and fifty; three hundred being the lowest or not credit worthy and eight hundred and fifty being the highest or most credit worthy. When a potential lender pulls your credit file, they average the three scores together to come up with a composite score that the lender will then use to determine credit worthiness.  If your composite FICO score is around six hundred and fifty, you will probably receive the loan but with an exorbitant rate of interest.  If your FICO score is eight hundred, you will receive the loan at a low rate of interest. If your score is below six hundred and fifty, then most likely you will not be able to qualify for a loan.

Young people do not have a FICO score because they have never received credit.  If you want your children or grandchildren to have a strong credit rating when they become adults, you can add them on to your credit cards, assuming that you have an excellent FICO score, so that when they are adults they will have a good credit rating.  Don’t tell the young people that you have an additional card in their name

If you are a young adult just starting to buy for yourself, you can establish your credit in small affordable increments.  You might want to apply for a gas credit card or establish an account at a local department store.  Just make sure that you don’t” bite off more than you can chew.”  By that, I mean don’t get in over your head.  Remember a credit account is just like cash.  It’s not play money; it’s real and your future depends upon you taking responsibility for your debts.

If you want to establish an excellent FICO score, you must pay all of your bills in a timely fashion.  Credit cards do not have to be a liability; in fact, they can be an asset if you use them wisely.  The best way to use a credit card is as a “cash card.”  In other words, pay it off in full every month.  Don’t ever close a credit card account even if the card is paid off.  The credit bureaus measure your credit worthiness based on your available credit limits.  So, if you pay off your balance in full every month, the credit card company will increase your credit limit on a regular basis.  Let’s say that you have four credit cards and the total amount of your available credit is twenty thousand dollars.  You owe four thousand dollars on all of them combined therefore you have sixteen thousand dollars of credit availability and four thousand dollars of credit liability.  If you close down one card that has an available limit of six thousand dollars, your new ratio of availability to liability will be sixteen thousand dollars to six thousand dollar which lowers your percentage of availability.   

In addition, all of your debtors can use your credit history against you even if you pay some bills on time.  Say, for example, you have three credit cards that you use and pay off regularly and one that you have let slide; did you know that when you renew your automobile insurance your rate will be higher because of the one card that you let slide?  Did you know that even though you pay off those three credit cards regularly, the one that you let slide could raise your interest rate on the other three credit cards? 

In the past several years, home loans were easy to obtain regardless of FICO scores but times have changed dramatically.  Today your FICO score matters immensely.  Many borrowers are having trouble refinancing those sub prime loans.  In essence, if their FICO scores had been higher, they would have had a fixed rate prime loan instead of a sub prime one so work on increasing your FICO scores so that you can qualify to borrow money at a low rate of interest.  Make it your New Year’s resolution to increase that FICO score!

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