It used to be that "people" made decisions about your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Those days are long gone, and now a single number - your FICO score - determines your credit worthiness.
We can talk about several ways to review your credit but to keep it simple we are going to focus on the credit model created by Fair, Isaac Company. Better known as FICO.
Your FICO score is the method used to determine the interest rate as well as how much credit a bank or lender is willing to give you. the cleaner the credit...the lower your rate and larger the sum you qualify for.
Keeping your credit history in good order and improving your rating is not a hard thing to do...but it will take time. Here are a few ideas how to do just that.
FIRST: Get a copy of your Credit History
You may not have a history for several reasons. Maybe you pay all your bills with cash, maybe you?re a student, maybe you have never needed a loan for anything. All this will have an effect on your history. Don?t be upset...if you?re like most people you will get a credit history far sooner than later.
A fast and easy way to improve or start a credit history is to get a loan and pay it off on time. "Installment loans" are looked at as more important than credit cards. You will show a stronger score if your installment loans are paid up to date and on time then say a consumer credit card.
A second idea is to take a sum of money, let?s say $1000, and put it in to a 6 month CD at a bank or credit union. Then you in turn go and get an installment loan against the first CD as collateral. The final part of this step is to take your new loan and repeat the process 2 more times at a different bank each time.
Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.
SECOND: Maintain Your Good Credit History
Ok...now you have a good history. No major debt...now to keep the FICO as high as you can.
Make sure you don't close your old accounts. (Unless of course they charge you a fee of some sort to keep it open.) Part of your credit score is based on the amount of credit available vs. amount used. If you close old accounts you may impact this part of your credit.
Something to think about. The day of the month you pay off your credit card may have a lot to do with your FICO score. Let?s say 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, but they report it on the 10th of the month...and you pay on the 15th. This would cause the credit agency to see you carry forward a balance every month. Try changing the payment times...just is sure NEVER to pay late.
THIRD: Repair Your Poor Credit History
For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.
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.
At the end of all this, make sure you review your credit report. Get one report from all three credit agencies. Read every page. (I know it reads like stereo instructions in Greek) Look at the entries and call and contact the creditors to have them remove any errors.
Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score. Before making any drastic changes to your finances, consult with a financial advisor.
We can talk about several ways to review your credit but to keep it simple we are going to focus on the credit model created by Fair, Isaac Company. Better known as FICO.
Your FICO score is the method used to determine the interest rate as well as how much credit a bank or lender is willing to give you. the cleaner the credit...the lower your rate and larger the sum you qualify for.
Keeping your credit history in good order and improving your rating is not a hard thing to do...but it will take time. Here are a few ideas how to do just that.
FIRST: Get a copy of your Credit History
You may not have a history for several reasons. Maybe you pay all your bills with cash, maybe you?re a student, maybe you have never needed a loan for anything. All this will have an effect on your history. Don?t be upset...if you?re like most people you will get a credit history far sooner than later.
A fast and easy way to improve or start a credit history is to get a loan and pay it off on time. "Installment loans" are looked at as more important than credit cards. You will show a stronger score if your installment loans are paid up to date and on time then say a consumer credit card.
A second idea is to take a sum of money, let?s say $1000, and put it in to a 6 month CD at a bank or credit union. Then you in turn go and get an installment loan against the first CD as collateral. The final part of this step is to take your new loan and repeat the process 2 more times at a different bank each time.
Now what you have is 3 loans. Pay the minimum payment for 6 months. In the last month, cash out your CDs and pay the loans off. You now have a credit history, and did not go into long term debt to get it.
SECOND: Maintain Your Good Credit History
Ok...now you have a good history. No major debt...now to keep the FICO as high as you can.
Make sure you don't close your old accounts. (Unless of course they charge you a fee of some sort to keep it open.) Part of your credit score is based on the amount of credit available vs. amount used. If you close old accounts you may impact this part of your credit.
Something to think about. The day of the month you pay off your credit card may have a lot to do with your FICO score. Let?s say 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, but they report it on the 10th of the month...and you pay on the 15th. This would cause the credit agency to see you carry forward a balance every month. Try changing the payment times...just is sure NEVER to pay late.
THIRD: Repair Your Poor Credit History
For whatever reason, if you have a poor credit history, there are things you can do to improve your score. Some of them take time, and you will probably be best served by talking to a credit counselor to be sure that you not only repair your credit history, but also eliminate what caused that poor credit history in the first place.
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.
At the end of all this, make sure you review your credit report. Get one report from all three credit agencies. Read every page. (I know it reads like stereo instructions in Greek) Look at the entries and call and contact the creditors to have them remove any errors.
Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score. Before making any drastic changes to your finances, consult with a financial advisor.
About the Author:
Doc Schmyz has invested all over the US and Canada. His free website shares Real estate investing information for all over the US. Find Real estate investing information by state
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