Question: A follow-up question from last week. You defined FICO scores and how they are determined. Is there a way for me to improve my FICO score?

A BuyandHolder

Answer:

Dear BuyandHolder,

As you mentioned, last week we answered a BuyandHolder’s question about an individual’s credit history and FICO score. Click HERE to read. Today we focus on how you can improve your FICO score – steps that will not only help you qualify for a mortgage or other type of loan, but also enable you to get a lower interest rate on such loans.

6 ways to boost your FICO score

Pay your bills on time. Delinquent payments and collections hurt your score. The longer you pay your bills on time, the better. Whenever you know that you will be late making a payment, immediately call your lender and explain why – in some cases this can help.

Keep balances low on credit cards. High debt levels have a negative impact on your score. Start to pay for items with cash, a debit card or by check.
 
Pay off debt rather than moving it between credit cards. One of the most effective ways to improve your FICO score is to pay down your revolving credit.

Apply for and open new credit accounts only when absolutely necessary. Too many applications lower your score.

Don’t close accounts on unused credit. Your score is based on how high your balance is against how much credit is available to you. A credit card with no debt on it is regarded as a plus.
Check your credit report regularly for accuracy. Read it carefully. If you spot any errors, contact the credit reporting agencies immediately. (For directions on how to get a copy of your credit report, see last week’s column.)

Bottom Line: Keep the 10% solution in mind. To maintain a high FICO score (720+), use no more than 10% of your available balance on any single line of credit.

If your FICO score is not in the good to excellent range, don’t panic. Instead, think of it as a snapshot of a single moment, not a sentence of permanent doom. True, late payments, bankruptcies, foreclosures, collections and the like stay on your credit report for seven years (Chapter 7 bankruptcies remain for ten years). But even during those seven years, the older the ‘faux pas” the less impact it has. Time in this case is a healer.  
                
To learn more read:

How Credit Scoring Works: www.pueblo.gsa.gov/cic_text/money/creditscores/your.htm

“Credit Education” at: www.MyFICO.com.