FICO score ranges
720-850 — The best
700-719
675-699
620-674
560-619
500-559 — The worst
Source: “The Money Book for the Young, Fabulous and Broke” by Suze Orman
How is your overall financial health? Do you know what your FICO score is? Do you even know what FICO stands for? If improving your credit score is one of your resolutions for 2012, there is hope.
Your FICO score, which stands for Fair Isaac Corporation (the company who created the formula) is something you can check for free annually through three different credit bureaus.
These major credit bureaus have records of what you have spent, what you owe and your payment history.
From this information your FICO score is calculated and is scored as a three-digit number. This score can affect anything from the interest rates you’’ll pay on credit cards to whether or not you would be approved for a car loan or cell phone plan, so raising your FICO score will ultimately help you in the long run.
To start on the path to improving your FICO score, follow these five steps.
1. Get Your credit report and FICO score
The first step to improving your score is finding out what is on your credit report. Once per year, you can contact each of the three major credit bureaus and request a copy of your credit score. The three credit bureaus are Equifax, Experian and TransUnion. Every year, you should contact all three and compare your credit scores for each. You can go to each bureau individually and request a copy or visit www.AnnualCreditReport. com and get copies. If you find mistakes on any of your credit reports, it is important to file a dispute with the credit bureau to fix the problem. Fair warning, this could take some time to fix.
Once you are happy with your credit report and information is accurate, you should then get a copy of your FICO score. Getting your score will cost you $14.95. However, unless you are planning to buy a house, getting just one of your FICO scores is acceptable. You don’t need to go to each of the credit bureaus and buy each of your three FICO scores if you are just trying to improve you financial health.
2. Make payments on time
If you find out that your FICO score is not where you want it to be, there are a few things you can do to improve it. The first is to make your bill payments on time. “To improve their credit scores, consumers need to have a history of making timely payments and should demonstrate the ability to repay a loan,” said Ed Reilly, president of KeyBank in the Southwest Ohio region.
3. Don’t close accounts
According to financial expert Suze Orman, one of the biggest mistakes people make in trying to improve their credit score is canceling a card once it is paid off. Developing a credit history helps improve your score. If you pay off a card, don’t cancel it, just cut it up and don’t use it. “Unused accounts help establish your credit history and help maintain a lower credit-to-debt ratio,” Reilly said. To figure out your credit-to-debt ratio, determine how much debt you have and how much credit you are permitted to use. For example, if you have two credit cards totaling $5,000 in credit card debt, but between the two cards you have a credit limit of $10,000, then you have a 50 percent debt-to-credit limit ratio. By keeping your debt-to-credit ratio low, you will improve your score.
4. Get the right credit mix
Don’t go out and get five different credit cards and take out a bunch of loans all at once. This obviously makes the credit bureaus nervous. However, they do like to see a mixture of major credit cards, store credit cards and loans that are all being paid regularly and on time. This doesn’t mean go out and start signing up for every store credit card you can. This will be seen as too much new credit and could hurt your score. Having one to two of each type is enough.
5. Seek financial help
If you are overwhelmed by your finances, seek out the help of a professional. “Credit counseling services can help people develop a plan to reduce their debt and renegotiate terms with their creditors,” said Reilly. “An individual should consider the help of a credit counselor if they are unable to pay the minimum balance on their credit cards, consistently make late payments or are regularly contacted by creditors or even a collection agency. The key is to not ignore the problems.
Jessica Garringer is a bargain hunter, DIYer and a couponer who loves to save money. You can reach her at JessicaGarringer@gmail.com. Get more money saving tips, ideas and projects at www.SaverSavvy.word press.com, www.Facebook.com/SaverSavvy or @SaverSavvy on Twitter.
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