According to Experian, 1.2% of U.S. FICO Scores reached the highest credit score of 850. You may feel your FICO Score can never get to that point. But by monitoring your credit report, it’s possible to have an excellent credit score.
It’s important you know how to check your credit score. Almost all financial decisions depend on it so you should check your score often. Would you want to get denied a car loan due to bad credit?
Once you know your credit score, work towards getting it higher. This article teaches you 5 ways to improve your credit score.
What Is a FICO Score?
The Fair Isaac Corporation (FICO) monitors your debt and on-time payment of bills. FICO is a formula used to summarize how well you manage your credit finances. When making banking decisions, 90% of top lenders use FICO Scores.
FICO assesses your payment history and length of credit. It considers detailed activity on your current and closed account activity. The credit information studied by FICO comprises:
- 35% Payment History – number of on-time and late payments
- 30% Amount Owed – how much of your open credit is in use
- 15% Length of credit – how long you’ve had established credit
- 10% New credit – frequency in which you open accounts
- 10% Credit Mix – different forms of credit available to you
Upon completion of their assessment, FICO assigns you a 3-digit score. It’s a number within the credit score range of 300 to 850.
Ways To Improve Your FICO Score
The average credit score is 700. But the higher your score the more favorable your debt management. Any finance blog can confirm an 850 score receives lower interest rates than a 700.
Practice these smart habits to improve your FICO Score:
1. Setup Automatic Bill Pay
You can set up automatic bill pay from your bank or with your creditors. This is a great way to guarantee timely payment of outstanding bills. Preventing delinquency is your best defense against reductions in your credit score.
2. Reduce Credit Usage Rate
Keeping your revolving credit low reduces your usage rate. So always maintain a low balance on your credit cards. Having a usage rate of 30% or below looks more desirable in your credit report.
3. Don’t Close Old Accounts
Leave your credit card accounts open after you’ve paid them in full. This increases your length of credit, which appears favorable on your credit report. Closing open lines of credit could raise your credit usage rate above 30%.
4. Limit Credit Applications
Each credit application results in an inquiry to assess your risk as a borrower. Considered “hard” inquiries, they affect your credit score in a bad way. So with each application, your credit score could reduce.
5. End Past Due Accounts
Check your most recent credit report for past due accounts. Pay what you can to make those accounts current. Going forward, automatic bill pay manages on-time payments.
Start Improving Your Credit Score Now
Don’t feel discouraged if your credit history looks bleak. Start making these 5 changes right now to improve your credit score. Don’t get denied credit or miss an opportunity to get a home mortgage.
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