5 Ways to Boost Your Fico or Credit Score
Nowadays we can't watch a TV program without being told how important it is to know our Credit Score. We are sung to by a quirky young guy with a ukulele. We are warned about the difficulties of buying, or even staying in our home. We are even threatened with our ability to keep, or get a job. All of this takes place right in the middle of our favorite Reality TV Show. The problem is these commercials educate us on where we can find our Credit Report, but not how to impact it directly. What I want to offer is 5 things that any consumer can do to give their FICO Credit Score a little, or sometimes even a big boost.
1: Knowledge - First of all, utilize the tools provided by these commercials. Don't worry so much about paying for the score itself, but rather understand the factors that are having an effect on your Credit Score specifically. What many people don't know is that the Credit Bureaus are not really regulated on any level. There are mistakes made on Credit Bureau's very frequently. The David Johnson's of the world are lucky to even come close to konwing an accurate credit picture. What also doesn't help is that there are 3 different Credit Bureaus Equifax, TransUnion, and Experian. Knowing what's on these allows you to find any mistakes early, giving you the power to get them corrected, and removed if necessary. This will be the first step in boosting a struggling FICO.
2: Installment Loans - An Installment Loan is one that is Secured by some kind of property, like a Vehicle or a Home. Installments will typically have a fixed payment and term. If you are considering buying a vehicle outright because you are worried about getting a loan and how it might affect your credit, then I would suggest this. Take the money you have saved for your vehicle, and put it in some kind of a savings vessel. Make the necessary payments on that Vehicle Installment Loan for 12 months, and then pay it off on month 13. A 12 month history on an Installment is often the first thing the bank will look for when applying for credit. Furthermore, Installment Loans have the strongest impact in terms of payment history directly to your FICO score.
3: Pre-Determined Financing - I'll keep this one as simple as possible. When you are thinking of buying a car, shop for your financing first. Admittedly this is a way to not give your Credit Score a big hit, rather than give you a big boost. An inquiry on your credit is not a big deal, a couple of "points" from your score at the most. The issue is when you use Dealer Financing stems from when they ask you for the payment you want. They then take that information, and send it to every financial institution they have a relationship with. This can result in several inquiries turning a couple "points" into 30 or 40.
4: 40% Utilization - This ratio is referring to the amount of credit you have available compared to what you have used. The misconception here is that you never want a balance on your credit card. Although this is true in terms of paying interest, it does very little to boost your credit score. Most major credit cards do not report a payment history to the Credit Bureaus when a card is paid off. This is because when they do their reporting, all they see is a zero-balance open line of Credit. On the flip side, you don't want too high a ratio on your Credit Line either. That is where the 40% mark comes in. At 40% a consumer is showing the Credit Bureau and the Financial Institutions that the Credit Line is a useful tool for you, but that you don't have to survive on it.
5: Department Store Credit Cards - These are dangerous because Department Store Credit Cards don't report on 0.00 balances the same way a streamline credit card does. They report no payment, rather than nothing at all. Keep in mind this is not the same as reporting a late payment, but it is still not a positive impact on your credit score. Avoid these cards and the 10% off that comes with them as they may cost you more when your Credit Score takes hit every month from non payment.
Someone smart once said something like, "knowing is half the battle." Now you do.