In the old days the “man behind the desk” decided to give you a loan or not. Your handshake was the contract and your honor was the collateral. Now however the “man” has a name…the name is FICO SCORE.
Although there are several credit models, the most commonly used is FICO, based on a model created by Fair, Isaac Company. Their consumer website is myfico.com, and you can find information about the FICO credit scores there.
A FICO score is one of the main factors used to determine your interest rate and the amount of a loan you will be offered. A good score makes you a more attractive loan then say someone who has a less then stellar credit history.
Getting and improving your credit score is not hard at all, just takes time. Here is a tip or two that will help you improve and increase your score.
FIRST: You need to get a copy of your credit history
You may not have a credit history for several reasons. Maybe you?re a student, maybe you pay all your bills with cash, maybe you have never needed a loan for anything. All this will have an effect on your history.
An easy way to improve your credit history is to get a loan and pay it off onetime. A loan such as a car loan (also known as an installment loan) is generally looked at as more important, and given more value, then a credit card loan.
Another way to acquire a better credit history is to take $1000 and open a 6 month CD account at a financial institution. Now, get an installment loan for $1000, using that CD as collateral. Now, here’s the trick. Take the $1000 loan, and open another 6 month CD account at another institution. Take another loan for the $1000 at the second institution. Do this one more time.
Let the CD’s mature, paying only the minimum for the 6 months. Once they mature you cash them out and pay off all three loans. Congratulations…you now have a credit history.
SECOND: Keeping your history in good standing.
So we now have a good history. How do we get the score higher?
Don’t close your old accounts. One part of your credit score is based on the amount of credit available verses amount of credit used. Closing old accounts can lower this part of your score.
Another thing to be aware of is how you manage your money. Here?s the scenario: you have a $2000 credit card. Every month, you charge about $1800 to that card. And, every month you pay it off. But here’s what happens – your credit card company reports your credit information monthly to FICO. However if they report it on the day before you pay it off…the credit agency sees you carry a balance every month. If you can try changing the days you pay off your credit card.
THIRD: Fix your bad credit
Ok we all at some point have poor credit history. However you can improve your score. It takes time but can be done. If you?re really unsure of the steps you need to take contact a credit counselor. You can find several good services offered online.
The most heavily weighted part of your score is based on your payment history. The first thing to do to start repairing your credit history is to pay your bills on time. The mortgage is the most important, followed by installment loans, and finally credit cards.
The next largest factor on your credit is how you have used it. You can improve it by paying off your credit cards.
One final thing to look for is errors in your credit report. Get a copy of your credit report from all three primary agencies, and look at all the entries. You can find the agencies here: experian.com, equifax.com, and transunion.com. If there are any errors, start the process to have them removed. Call your creditors – sometimes they will remove negative information.
A good FICO score is a huge part of your financial life. Keep it healthy. Use these tips and watch your score climb.
Doc Schmyz has worked with investors all over the US. He built a free website shares Real estate investing information for all over the US. Find real estate information by state
