If you’re planning to buy a home or see a loan in the near future, or you just want to maintain good credit to improve your financial health, you need to start paying attention to your FICO credit scores.
Although you probably think of yourself as having a single FICO credit score, you actually have three main FICO scores – 1 tied to your Experian credit report, 1 tied to your Equifax report, and 1 tied to your TransUnion report.
Many lenders and creditors will review your FICO credit scores to determine creditworthiness, and any errors or blemishes in your credit reports can significantly lower your credit score.
Here are some tips to improve your FICO credit scores:
1. Get your free credit report
Three out of four Americans don’t take advantage of the free credit reports available from the three major credit bureaus every year. Visit www.annualcreditreport.com to order a current copy of your credit report from all three credit bureaus – Equifax, TransUnion, and Experian. You are entitled to one free report from all three credit bureaus every 12 months. Reviewing your credit report regularly will give you a chance to see exactly what is in your credit file so you can look for areas of improvement.
2. Check your credit report for mistakes
Many creditors make mistakes when reporting information to the major credit bureaus and this can lower your FICO credit scores. Take the time to review your credit reports in detail so that you can dispute any errors as soon as possible. The Fair Credit Reporting Act gives consumers the right to dispute mistakes, such as outdated and unverifiable information. By law, the credit bureaus have to act on your written credit dispute within 30 days of you filing the dispute.
3. Use a credit monitoring service
Even though many people think that paying for a credit monitoring service is a waste of time and money, there are several situations where you can benefit from these types of services. If you really want to take control of your financial situation and do whatever you can to improve your FICO credit score, you can use a credit monitoring service to get a better perspective on how your actions are affecting your credit score and standing on a weekly and monthly basis.
Almost immediately, you’ll see be able to see the effects of hard inquiries on your credit report from activities such as renting a car with a debit card, or applying for a new credit card. This can help you make more informed decisions with your finances.
These days, if you don’t want to pay for credit monitoring for all three FICO scores, you can at least get one of your FICO credit scores free from certain bank credit cards in your wallet.
4. Pay down credit card balances as soon as possible
Did you know that 30% of your FICO score is calculated based on your outstanding credit card debt? Reducing credit card debt and thereby increasing the amount of available credit you have available (versus debt you’re carrying) is an excellent way to boost your credit score.
5. Pay all your bills on time
This sounds like common sense advice but some people don’t realize how missing a single payment on a credit card or even your utility bill can affect your credit score. 35% of your FICO credit score is based on your payment track record. Keep making timely payments to improve your FICO score in as little as six to 12 months.
6. Keep established accounts open
Since 15% of your FICO credit score is based on the length of your credit history, it pays to keep accounts open – even if you aren’t using them. You won’t lose points just for having an open account with a zero balance.
7. Say ‘no’ to store cards
As tempting as it can be to open a new account at your favorite retail store to save money on some new purchase, resist that temptation and just say ‘no’. Under the FICO credit scoring model, 10% of your credit score is based on new applications for credit and inquiries. So only apply for credit if you truly need it.
8. Show how responsible you are
Having more than just credit card debt can actually boost your credit score. If you have a mix of different types of debt, such as installment loans in the form of a car note or student loan, or housing debt, such as a mortgage – and you’re making the all your payments on time – you can increase your FICO credit score. That’s because 10% of your FICO credit score is based on the mix of credit shown in your credit files.