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Question: With the new credit card rules, how can I improve my FICO score?

A BuyandHolder

Answer:

Dear Buyandholder,

For the last three weeks, we have been discussing the new credit card law (CLICK HERE), how to get a free credit report (CLICK HERE) and why it’s important to occasionally use each card that you own (CLICK HERE).

We are winding up the series this week with tips on how to improve your credit card score, also known as your FICO.

Your FICO number, determined by the Fair Isaac Corporation (www.myfico.com), is derived from information supplied to FICO by the three major credit agencies. This information consists of:

Your payment history (35%). This includes how often you have made late payments and whether or not you’ve declared bankruptcy.

The amount you owe (30%). This includes balances on all accounts as well as how many of your accounts actually have balances. It also calculates how much you owe in proportion to how much credit is available to you. In other words, how close you are to your credit limits.

The length of your credit history (15%). The longer you have been managing credit, the better. Therefore, do not cancel your oldest credit card. If it has a high interest rate, use it just several times a year.

How much new credit you have (10%). Applying for new credit temporarily lowers your score by about 5 points.

FICO scores range from 300 to 850. You want a score that is above 720.

Reaching 720

1) Pay bills on time. If you currently have past due invoices, pay them off as soon as possible.

2) Reduce your outstanding debt. That includes not only credit card debts, but personal loans, department store and gas station cards and the like. (Your mortgage is not part of this configuration, as long as you are paying it on time each month.)

3) Keep credit card balances low. High debt levels have a negative impact on your score.

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

5) Don’t close accounts with unused credit. Your score is based on how high your balance is relative to how much credit is available to you.

6) Don’t transfer delinquent accounts to another card. Doing so may lower your score. Make every effort to make timely payments on the existing delinquent account. Call creditors where you’re behind and work out a plan in which the dollar amount you owe each month is reduced.

7) Check your credit report regularly for mistakes. Contact the creditor and credit reporting agency to correct any errors you discover.

Bottom line: Keep the 10% solution in mind. To maintain a FICO score of 720 or higher, use no more than 10% of your available credit on any single card.

For help: Read the excellent advice posted at: FICO: www.myfico.com and by the National Foundation for Credit Counseling at: www.nfcc.org.

Note: FICO was founded in 1956 by engineer Bill Fair and mathematician Earl Issac.

Good luck!

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