A credit score is a 3-digit number that measures your ability to manage debts responsibly and is the main deciding factor for a loan and the interest rate you shall pay. Borrowers having FICO scores in the higher end of 300-850 are considered high and those who have scores on the lower end are considered risky. Repairing bad credit needs discipline and patience. The best advice is managing credit responsibly. You have to repair the credit history to see the score improve. You can opt for a free credit score report to see your credit score.
How to boost your FICO score?
FICO score measures your financial credibility in case you are aiming to get some loans from the financial market. FICO stands for Fair Isaac Corporation who develops credit rating for the citizens of a country. Here are a few ways to improve your FICO score:
- Check the credit report for errors
Review the credit report and see whether there is any incorrect information. Every person is entitled to a free credit score report from the national credit bureaus including Equifax, Experian, and TransUnion, once annually. Ensure that the accounts listed here show your payment history accurately and they belong to you. Report the errors if any for further investigation.
- Paying bills on time
Making timely payments to creditors and lenders is a big contributing factor. It makes up 35% of a FICO Score. Delinquent payments though are late for a few days can have a huge negative impact on FICO score. You can use payment reminders through the online portal of your bank. You can enroll in automatic payments so that the payments shall be debited automatically from your account. The effect of earlier credit scores on FICO scores fades away with time.
- Minimize the debt amount owed by you
Your debt balance and credit utilization contribute 30% of the FICO score. It can be cleaned up easily, however, it needs financial discipline. Keep credit card balances low because high outstanding debt might impact a credit score negatively. One of the most effective ways of improving your credit score is by paying off the credit card debt. If you do not use the maximum available balance on your credit card then FICO rewards you. You can receive a high score when you use either 25% or less the credit available to you on credit cards.
- Observe credit reports sent to a collection
If unpaid accounts are sent to collections then it can reduce your credit score. As your credit might affect your financial health, you should sort out the issues with lenders. Ask for a debt verification letter prior to paying lenders. If you make a payment without requesting verification then you have the risk of payment to the wrong lender.
- Do not make applications for new accounts frequently
When you apply for new credit, there is a hard inquiry on the credit report. This inquiry can reduce your credit score temporarily. It might impact your score for the initial 12 months. Before applying for a new credit card, research on the chances to get approval. You should not lower your score regarding a denied application. FICO considers several applications for auto, mortgage, or student loan as a single inquiry within a specific time frame. As per FICO, the time span might vary between 14-45 days. A credit score check is a soft inquiry and it will not hurt your credit score. When it comes to credit score, soft inquiries and hard inquiries are not the same things.
You will not get an 850 credit card easily. Every right step can help you to achieve this. If you want to know how to boost your fico score, you should move from bad credit to good credit. Develop long-term good credit habits and credit score check.
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