How do I Improve my FICO® Score?

L. Burgoon
L. Burgoon
Paying bills on time is important to improving a person's FICO® score.
Paying bills on time is important to improving a person's FICO® score.

A good credit score is vital to a secure financial future; a high rating prompts better interest terms on mortgages, car loans, and credit cards, thereby reducing the total loan amount. The Fair Isaac Corporation (FICO®) is one of the leading firms that determines credit ratings and considers both positive and negative factors in its assessment. Improving a FICO® score is possible but it takes time and determination. The process involves responsible financial action, such as paying bills on time, maintaining a good ratio of debt to available credit, paying off debt, and building a solid credit history. Be sure to regularly examine credit reports and contest any misinformation that can negatively affect a score.

FICO scores can be improved by building a solid credit history.
FICO scores can be improved by building a solid credit history.

Paying bills on time is the most important step in improving a FICO® score. Lenders look at a consumer’s payment history to determine whether a loan is likely to be paid back promptly. Any delinquent bill — from credit cards to utilities to cell phones — counts toward this history if the infraction was reported to a credit agency. While the long-term picture is important, it is especially essential to pay bills on time in the months leading up to a loan application because any late payment will significantly drop the FICO® score without time to rebuild it.

Those with poor credit should first look at their score and understand that they can change it over time through appropriate credit repair efforts.
Those with poor credit should first look at their score and understand that they can change it over time through appropriate credit repair efforts.

Total amount owed has a significant impact on a FICO® score. Keeping balances well below the credit limit helps improve the score and maintains a good debt to available credit ratio. Low amounts owed signals to FICO® that the consumer likely uses credit responsibly and does not overly rely on credit to sustain a lifestyle. Paying off debt, rather than shifting it around to other credit cards or through secondary loans, helps improve this FICO® factor.

Credit history is also important. FICO® looks at the age of all accounts, paying attention to the oldest and newest, as well as the average age. This factor may be the hardest area for improving an FICO® score because it is difficult to quickly correct. Instead, consider opening one line of credit to begin establishing a positive history immediately. Also avoid closing longstanding accounts unless absolutely necessary; doing so will shorten the credit history and increase the debt to available credit ratio.

Do not open several accounts at once, however, as this may immediately your lower FICO® score. Consideration of new credit is part of the calculation. Too much new credit will dramatically drop a score.

The remaining portion of the calculation is based on the type of credit carried. FICO® considers the types of accounts — whether they are revolving, such as a credit card, or installments such as student loans — and the mix of accounts. Credit cards, retail cards, mortgages, car loans, and so on help diversify the types of credit. While having a good mix helps improve a FICO® score, do not open unnecessary accounts; this will lower your credit rating.

FICO® scores are calculated from information in credit reports. Any misinformation will lead to a lower score. Regularly requesting and examining credit reports for incorrect information is essential. Immediately contacting the agencies to file corrections will help improve a FICO® score.

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    • Paying bills on time is important to improving a person's FICO® score.
      Paying bills on time is important to improving a person's FICO® score.
    • FICO scores can be improved by building a solid credit history.
      FICO scores can be improved by building a solid credit history.
    • Those with poor credit should first look at their score and understand that they can change it over time through appropriate credit repair efforts.
      Those with poor credit should first look at their score and understand that they can change it over time through appropriate credit repair efforts.