Credit Score Facts and Fiction

Raising your FICO credit score is not an overnight process. In order to get a good credit score, it takes time and commitment to follow a proven plan. There is no quick fix for bad credit, but increasing your credit score can be done.

In fact, most of the advertisements that promise quick-fix credit solutions will not work – at least over the long term. The best advice in building a good credit score is to manage credit responsibly over time. A better credit score will allow you to access the best possible rates on loans and mortgages, saving you thousands of dollars over your lifetime!

Following just a few simple tips can help to raise your credit score.

Ways of Using Credit

• Only open as many credit lines as you need.
  It doesn’t usually help to open random multiple accounts to develop a better credit “mix”.
• Own and use credit cards in a responsible manner.
  It is a good idea to have credit cards and use them in order to build initial credit. Using credit cards and having personal loans (assuming you make payments on time) is a proven way to build credit and raise your credit score. Lenders view a person with no credit cards and no previous credit as a higher risk than someone who has managed previous credit obligations successfully.
• Simply closing an account doesn’t make it disappear.
  A closed credit account will still be identified on your credit report, and can be considered by the score.

The Importance of Payment History

• Just pay your bills – period.
  Past-due payments and balances sent to collections can have a significant negative bearing on your FICO score.
• Make your payments on time – all the time.
  The more often you pay your bills on time, the better your credit score will be.
• Collection accounts can linger on your credit report.
  A delinquent account, even when paid in full, will stay on your report for seven years. If you have had a bankruptcy, it will stay on your report for 10 years!
• If you are having trouble making ends meet, contact your creditors directly.
  Simply contacting your creditors and discussing your situation will not directly improve your credit score. However, if you work out a payment program with your creditors and pay on time, it will certainly help to increase your score in the future.

Importance of Credit History

• If you have started getting credit, only open a few new accounts.
  Creditors look at the length of time that a certain line of credit has been open when assessing credit worthiness. Therefore, opening many new accounts will lower your average account age. Average account age has a more significant effect on your credit score when you don’t have a lot of other credit information.

Managing Credit Use

• Keep balances on credit cards and lines of credit in check.
  Maintain outstanding debt at 50% or less of available credit for the maximum benefit to your credit score.
• Instead of transferring debt, just pay it off.
  If we remember in the previous section, the percentage of total credit used that is available has an impact on your credit score. Therefore, owing the same amount of money on fewer open accounts can lower your score.
• Opening several new credit cards simply to increase your available credit doesn’t work.
  This strategy may seem like it would work given that you would be using a smaller percentage of your total available credit. However, it may backfire because at some point you will have more available credit than you have the capacity to pay back with your income. This is a big red flag for creditors because if you happen to decide to use all of your credit, you will not be able to pay it all back.

Obtaining New Credit

• Shopping for new loans and mortgages in a short period of time.
  The length of time between credit inquiries is a major factor in determining if a person is looking for the best rate on a new loan, or if they are trying to open several new credit accounts. FICO scores can easily identify a search for a single loan versus many new credit lines using this measurement.
• If you have had problems in the past, build your credit slowly.
  Opening just a few new accounts and paying them off responsibly and on time will raise your credit score for the long term.
• Everyone should request and check their own credit report.
  As long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports, getting a copy of your own credit report will not hurt your credit score. Furthermore, understanding the items on your credit report can help you to to build a good credit score.

Where to Get Your Credit Report?

Experian – You can get a copy of your credit report for no fee.

Credit Score Review – Free Trial! – A free trial offer that provides all 3 nationally recognized credit scores.

AnnualCreditReport.com – A government sponsored agency that provides credit reports to consumers.

All Scores Instantly FREE – Includes Credit, Auto, Insurance,and Employment Scores.