ANSWERS: 1
  • A credit score is a composite of factors that affect a borrower's ability to get financing. The Fair Isaac Corporation created FICO scores that range from 300 to 850. This score indicates the credit risk level of a borrower and determines a consumer's ability to get loans, credit cards and financing from lenders.

    Request a Free Credit Report

    Lenders request their applicant's credit reports from one of the three major credit reporting agencies. Consumers have the right to request a free copy of their credit report from Equifax, Experian and TransUnion. Obtaining a credit report is the first step to increase a credit score because it will highlight areas that need improvement.

    Establish Credit History

    It takes time to improve and establish a good credit score. The length of a borrower's credit history helps increase a FICO score. A new borrower is a higher risk for lenders vs. someone who has had a lengthy credit history. Opening up a bunch of credit cards will not improve a credit score. Accounts that are six months or older are generally calculated into a credit score. It is better to have an account that has been open for years and can reflect credit worthiness.

    Pay On Time

    Payment history is an important factor to improving a credit score. One late payment can greatly reduce a credit score, so it is imperative to make payments on time. Late payments remain on a report for seven years and bankruptcy can be reported for up to 10 years, according to the Fair Isaac Corporation.

    Keep Account Balances Low

    Credit accounts from bankcards, car loans and mortgages all have a set credit limit. Having a low debt to credit ratio will improve a credit score significantly. Borrowing activities that include maxed out credit cards will lower it. Try to increase the credit card limit on a high balance credit card to keep balances low. Pay off the balance a little each month instead of making one large payment. It helps establish credit history and indicates that a borrower can manage debt.

    Dispute Errors and Negative Reporting

    There might be false reporting on the credit report. Contesting the error and having it removed will drastically improve the credit score. The Fair Isaac Corporation recommends checking FICO scores at least six to 12 months before applying for a loan to have time to improve the credit score if needed.

    Source:

    Fair Isaac Corporation; Why is your FICO score so important to your financial health?

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