5 Ways to Improve Your FICO Score

Your credit score matters. What your score is determines whether or not you will be able to get a home loan, an auto loan, credit cards, etc., and, if you are able to secure these types of financing, your credit score determines how much you will pay for these types of financial arrangements. Your credit score is known as your FICO Score. The FICO scoring process was developed by The Fair Isaac Corporation, in an effort to help lenders quickly determine if an applicant was a qualified borrower.

If you have a low FICO score and want to improve it, let me first say that this won’t happen overnight. It takes time to establish a truly great FICO score. There are some things that you can do that will have a near immediate impact on your score, though, and here are five things you can do to start to improve your FICO score:

  1. Pay Your Bills On Time – this might seem obvious (well, hopefully it does), but your FICO score assigns a very high weight to your timeliness with regards to payment. If you think about it, this makes sense. Lenders want to know that you have a history of paying your bills on time, and one of the best predictors of future payments is what you have done historically. If you have a good track record of making timely payments, you are a much better credit risk for lenders.
  2. Do NOT Request New Credit – Each time that you request new credit, your FICO score goes down. Lenders view looking for credit as an indication that you are desperate for cash. Keep your requests for new credit at a minimum, and your FICO score will go up.
  3. Have longstanding credit accounts – If you are thinking about closing a credit card, don’t. FICO looks at how long you have had your credit accounts when determining your score, and the longer, the better. If you are going to close an account, close an account that was established recently so that your average credit account age actually increases.
  4. Lower your balances – Most industry experts will recommend that you keep the amount that you borrow on a particular card at or below 25% of your overall available balance. So, pay down your high balances, and make sure your credit reports provide an accurate reflection of your credit usage. If you have some balances that exceed 25%, look for a 0% balance transfer credit card that you can use to store your debt while you pay it down.
  5. Use your credit – I know I just told you to pay off your credit cards, but you need to use your cards to make sure that your credit card issuer does not cancel your card or reduce your balance.

If you do these five things, you will see a nice uptick in your credit score over time. The transformation will not be immediate, but your credit score will gradually improve.