FICO scores are the backbone of the lending market, and many lenders use FICO scores to pre-screen borrowers for the best deals and interest rates. If your FICO score isn't high enough, you could be paying hundreds or thousands of dollars in high interest rates; money better off in your pocket. If you want to hang onto your cash and qualify for the best deals, you need to discover how to improve your FICO scores.
When do I need to raise my FICO scores?
The best FICO scores are scores above 720 on a scale that goes up to 850. FICO scores above 720 are considered excellent, and help qualify you for the best rates lenders can offer. Scores in the 600-720 range are considered fair; you can probably qualify for a loan, but at a higher rate than an excellent credit score. FICO scores below 600 are considered weak, while scores below 500 are categorized as very weak. With FICO scores between 500 and 600, you may have trouble getting a loan. If your FICO scores are below 500, you'll have a hard time getting credit and need to work on raising your FICO scores.
How payment history affects FICO scores.
Your payment history is one of the most important aspects of your FICO score. Late pays and defaults make a large negative impact on your FICO scores, while a bankruptcy can absolutely tank your credit. If you've got blemishes on your payment history, try to clean them up. If you've defaulted on an account, talk to the lender about paying the account and having them report it as paid. Dispute erroneous account history data, as it can severely impact your FICO scores.
Credit ratio is a key component of FICO scores.
Even if you've never made a late payment, you could still find yourself with low FICO scores. Your credit ratio plays a large part in your FICO score. Lenders look at your total credit available, and how much you're currently using. An ideal credit ratio is 30% or below, while a credit ratio of over 50% can actually lower your FICO score. To improve your FICO scores, pay down your credit card balances or talk to your lenders about increasing your available credit. Anything you can do to improve that credit ratio is going to improve your FICO scores.
Leave old credit accounts open, and avoid opening new ones.
Length of credit history is another important factor in your FICO scores. If you want to stop using an account you've had for ten years, stop using it, but don't close it; otherwise your longest account could be years shorter. Conversely, avoid opening new credit accounts unless you absolutely need them, because applying for credit lowers your FICO score. If you're shopping for a home or auto loan, make all of your inquiries within 30 days so that they count as one inquiry; otherwise, you'll have multiple negative entries as you pull credit to look for a loan.
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