FICO, which stands for Fair Isaac Corporation, is a term which describes your personal credit score. That score is used by lenders who will determine if you qualify for a loan and the interest rate you’ll
charged as well as the length of your loan. The higher your score, the more likely you’ll be approved for a consumer loan and receive favorable terms.

In these pressing economic times, not everyone has a good FICO credit score, which can be especially problematic if you need to apply for a consumer loan. Whether seeking a mortgage, a home equity loan/line of credit, car loan, credit card, or some other type of loan, you need to get the highest score possible.

Raise Your FICO Credit Score Step By Step

Fortunately, you can raise your score and see significant results within 2-3 months time. If you plan on applying for a loan some time over the next few months, the following steps can help you improve your FICO credit score:

Shrink those balances: You don’t have to pay off your credit cards, but running big balances is a red flag to creditors. Work on reducing your debt, a step which will gradually raise your credit score.

Don’t apply for too many loans: You may have unwittingly caused your credit score to drop by applying for too many loans in a short period of time. This can happen if you are planning to shop for a new car and are arranging your own financing. By applying to several different lending institutions for the sake of finding the best deal, you’ll be shooting up another warning flag to creditors. Find out the rate first, then apply.

Remedy credit problems: If you’ve been late making payments in the past, then your score will take a hit. Make payments on time and pay more than the minimum amount due each month. Get free copies of your credit reports and check them for errors; notify the credit reporting agencies if you find mistakes. They are required by law to fix mistakes within thirty days or that information must be automatically removed from your credit report.

Keep consumer accounts open: Odd as it may sound, closing a credit card or other consumer account will negatively impact your credit score. Simply tuck your unused credit cards away in a safe place and don’t use them again. You can gradually close them after you secure new credit, especially if you have no plans to borrow again in the near future.

More accounts means a reduced score: Opening more accounts will work against you. Only open up enough consumer accounts as needed.

Consider NOT moving your money around: Consumers have gotten into the habit of shifting outstanding balances from one account to another, but that move can actually reduce your credit score. Consolidating your balances to one account may cause your credit score to drop.

Building a good credit history is an achievable and laudable goal for any consumer. Take care of your credit score and your credit score will take care of  you in the form of favorable lending terms for your next consumer lending opportunity.

Tags: auto loan, car loan, consumer credit, consumer loan, credit card, credit score, FICO, home equity, line of credit, mortgage

One of the keys to having a strong credit record is your credit score, the number the three major consumer credit reporting agencies develop to help lenders decide whether you will receive credit, for how long (your term), and the interest rate that you will pay. The higher your score, the more likely you’ll be approved for a loan and at a competitive rate.

Experian, TransUnion, and Equifax are the three private agencies who track your credit and each one “scores” you based on the financial information that they have about you. Thus, each one will likely return numbers that are different from the other two, but their scores should be in the same ballpark.

Your credit score is also called your FICO score which stands for Fair Isaac Corporation score, a formula developed by Fair Isaac and used by all three credit reporting agencies.

If you are looking to buy a home and are seeking to finance it for 30 years, taking out a $300,000 loan then the most recent FICO numbers would give you the following loan details:

These are national averages, so your loan will look slightly different where you live. As you can see, the $950 per month premium for the person with a score in the low 500s, would add more than $10,000 annually to the loan, that is if they can get approved in the first place.

So, what can you do to raise your score? It can’t be changed overnight, but if your score is too low you can do the following which should yield decent results within 3-4 months time:

Clean up your credit report — that’s right, if there are errors on your report your score could be artificially low. Start off by checking your report first for accuracy before proceeding.

Pay on time — late payments can weigh you down, therefore make sure that you pay every bill on time.

Pay down debt — you don’t have to pay off all of your debt, but if your percentage of debt as related to credit line is over 35%, then that will lower your score.

Clean up an old mess — that unpaid and uncollected money you owe from long ago could be biting you in the backside. Contact creditors and offer to pay at least a portion of what you owe to settle your debt once and for all.

As always, check your credit regularly by ordering a credit report and your credit scores to see where you stand. Obtaining both is a small investment which can pay near instant dividends.

Tags: credit report, credit score, Equifax, Experian, FICO, free credit report, TransUnion