In order to get the best interest rates on new loans or
credit purchases, it is essential that you have a healthy credit score. Your
FICO score (so named after the company who devised the rating system, Fair
Isaac and Co.) is the first indicator that creditors and lenders look at to
determine how much they can trust you to make on-time payments on your new loans
or purchases.
There are other factors that creditors will look at as well
when reviewing your record. Some lenders only take into account the last year
of your credit record, and they might also consider such things as how long
you’ve held your current job and how long you’ve resided in your current home.
But examining your FICO score remains the first and foremost
way in which creditors gauge your financial trustworthiness. It is very often
the basis for how big of a loan you qualify for and what the interest rate on
that loan is. Raising your credit score, however, is not an easy task, especially
if you have a lot of late fees on outstanding credit debts on your record.
If you would like to come up with a personalized plan to reduce credit card debt and raise your credit score, contact Professional Debt
Advisors TOLL FREE at 866-559-8332,
and schedule a no-obligation, free debt resolution session today.
The Nuts and Bolts of
the FICO Score
If you want to find out how you can begin repairing your
credit, your first task is to get a better grasp on how the three credit
bureaus (Equifax, Eperian, and TransUnion) come up with your FICO score. Once
you understand the basics of how the scoring system works, you can begin
creating a financial strategy to raise your score. Much of the information you
need can be found for free online at various, federally sponsored consumer
credit websites and at Fair Isaac and Co.’s official website. Many of the
strategies that can be found on these sites are simple, common-sense personal
finance practices that you can start implementing today.
Below is an approximate break-down of how the FICO scoring
system works. Keep it in mind as you look at your own credit report, which you can
request for free at www.annualcreditreport.com.
Payment History
Your payment history accounts for about 35% of your total
FICO score. The best way to improve it is simply to start making on-time
payments on your credit debts. How responsible you are in making your monthly payments
on your mortgage, credit cards, car loans and student loans, etc. is the
biggest determinant of your overall credit score. The more late payments you
have on your record, the lower your FICO score will be.
Size of your Debt
About 30% of your credit score depends on how much money you
owe your creditors. The bigger the size of your overall debt, the lower your
FICO score will be. To start improving this area of your credit report, make an
effort to pay down your debts as best you can. This means making more than your
minimum payments each month, as the minimum payment usually only takes care of
your loan’s interest. To start, pay off your biggest credit card debts first,
as these are the riskiest looking ones on your report. Remember, though, that
moving debt around from card to card won’t do you any good. Your score is based
on your total debt balance, not on the debt owed on individual credit cards. Depending on your current situation, it may be a good idea to look into debt management credit counseling.
Credit History
The length of your credit history accounts for about 15% of
your total FICO score. It is hard to immediately improve this aspect of your
credit record, as you need time in order to build up good credit history. The
thing to do here is pay off and close new credit accounts, and leave only the
two or three oldest accounts you have. Doing so will increase the average
length of your credit history. Make one of the remaining credit lines a
revolving account, like a credit card, and another one an installment loan, to
show that you are adept at handling the two different types of credit accounts.
New Credit
New credit accounts for about 10% of your total FICO score.
Opening up a lot of new accounts, especially if you are using each successive
account to pay off debts on previous ones and make new purchases, has a
negative effect on your record. So next time one of your favorite department stores
offers you a credit line, think twice before accepting.
Another thing to keep in mind is that too many credit report
requests within a short amount of time also negatively affect your score, as
they signal to creditors that you are looking into taking out new loans.
Inquiries into your credit score made by lenders without your permission, however,
do not affect your score. If you find you are not happy with your score, it may be time to look into credit card debt reduction services.
Type of Credit
Lastly, the type of credit lines you open accounts for about
10% of your total credit score. Open ended credit accounts, such as credit
cards, have no fixed number of payments. You’ll continue to pay them off as
long as you continue to use them. The other kind of credit line is installment
loans, things like car loan and mortgages, which have a fixed number of monthly
payments. You have to open both types of accounts and show that you have the
financial skills to handle them.
The process of raising your FICO score requires good
planning and good financial discipline. Working to reduce credit card debt is a
big part of it. If you would like to find out more, call us TOLL FREE at 866-559-8332 to schedule a
free debt resolution session with one of our experiences debt management
professionals. Our debt resolution service can put you on the right track
towards financial health and keep you on it.
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