Improving Your Credit Score

Improving Your Credit Score
by Takara Alexis

Even if it is just a few days late, just one overdue payment-whether it's for your mortgage, a utility bill, an auto loan, a Visa account, or any of a hundred other credit obligations-could seriously damage your FICO score. FICO pays a lot of attention to whether you start a pattern of missing due dates, so a series of late payments can really hurt your score.

It is never too late to clean up your act. Get yourself up to date as quickly as you can and then stay current. Your score will start to improve within six months- and the longer you keep it up, the more noticeable the increase will be. The negative weight FICO gives to bad behavior like delinquencies lessens over time, so as long as you stay on the straight and narrow, those black marks will eventually disappear from your record for good.

Of all the factors you can control-and improve quickly-how much you owe is probably the most powerful. Say you have got a $1,000 balance on card with a $2,000 credit limit-and then the card company cuts your limit to $1,000. All of a sudden, you went from 50% credit utilization to being maxed out, and being maxed out could cost you as much as 100 points.

Closing old accounts shortens your credit history and reduces your total credit-neither of which is good for your FICO score. If you have to close an account, close a relatively new one and keep the older ones open. Also, closing an account will not remove a bad payment record from your report. Closed accounts are listed right along with active ones.

The best way to raise your score is to display that you can handle the responsibility of credit-which means not borrowing too much and paying back what you do borrow on time. Don't open new accounts just to increase your available credit or establish a better credit variety. This is especially true if you are just beginning to establish a credit history.

When you apply for a loan, the lender will "run your credit"-that is, send an inquiry to one of the credit rating agencies to find out how credit worthy you are. Too many such inquiries could damage your FICO score, since that could show you're trying to borrow money from various sources.

The FICO scoring system is designed to allow for this by considering the length of time over which a series of inquiries are made. Try to do all your loan shopping within 30 days, so the inquiries get tied together and it is obvious to FICO that you are loan shopping.