Strategy One: Obtain A Credit History

Category: Finance, Credit.

It used to be that" people" made decisions about your credit worthiness.

Those days are long gone, and now a single number- your FICO score- determines your credit worthiness. You knew your banker and your handshake was all the collateral you needed. Although there are several credit models, the most commonly used is FICO, based on a model created by Fair, Isaac Company. Your FICO credit score can be used to determine your interest rate and how much credit a lender will give you. Their consumer website is myfico. com, and you can find information about the FICO credit scores there. So taking care of your score, and keeping your credit clean will save you money.

Here are some tips to maintain and improve your score, based on three credit situations. Preserving your FICO score, is not difficult, and improving it, but it may take time. Strategy One: Obtain a Credit History. Maybe you re just starting out, maybe you pay cash for everything and have never needed a loan. There are many reasons you may have no credit history. In any case, if you have no credit history, your FICO score is likely to be low.

In general, installment loans are weighted more heavily than credit cards. The easiest way to raise your score is acquire a loan, and pay it off on time. In other words, you will improve your credit score faster if you buy goods with an installment loan, rather than acquiring a credit card. Now, get an installment loan for$ 1000, using that CD as collateral. Another way to acquire a better credit history is to take$ 1000 and open a 6 month CD account at a financial institution. Now, here s the trick. Take another loan for the$ 1000 at the second institution.

Take the$ 1000 loan, and open another 6 month CD account at another institution. Do this one more time. Pay the minimum payment for 6 months. Now what you have is 3 loans. In the last month, cash out your CDs and pay the loans off. Strategy Two: Maintain Your Good Credit History.

You now have a credit history, and did not go into long term debt to get it. Good job- you have paid your bills on time, and do not have high credit card debt. First, don t close your old accounts. Here s some ideas to keep your FICO score as high as possible. One part of your credit score is based on the amount of credit available verses amount of credit used. Second, paying off your credit cards every month is good money management, but you may be able to improve in this area.

Closing old accounts can lower this part of your score. Here s the scenario: you have a$ 2000 credit card. And, every month you pay it off. Every month, you charge about$ 1800 to that card. But here s what happens- your credit card company reports your credit information monthly to FICO. You may find your FICO score improves if you pay off your credit card at a different time of the month. If they report it before you pay off your card, it looks like you carry a balance on your credit card every month.

Strategy Three: Repair Your Poor Credit History. 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. For whatever reason, if you have a poor credit history, there are things you can do to improve your score. The most heavily weighted part of your score is based on your payment history. The mortgage is the most important, followed by installment loans, and finally credit cards. The first thing to do to start repairing your credit history is to pay your bills on time. The next largest portion of your FICO score is based on how you use credit.

One final thing to look for is errors in your credit report. The fastest way to improve this is to pay down your credit cards. Get a copy of your credit report from all three primary agencies, and look at all the entries. If there are any errors, start the process to have them removed. You can find the agencies here: experian. com, equifax. com, and transunion. com. Call your creditors- sometimes they will remove negative information. Before making any drastic changes to your finances, consult with a financial advisor.

Your FICO score is an important part of your financial life, and using these strategies may help improve your FICO score.