How to Improve Your FICO Score

How to improve your FICO score is one of the greatest unsolved mysteries of the modern age. Everybody who has ever applied for credit has a credit report and a credit score, known as the FICO score. (FICO is an acronym for "Fair Isaac Corporation", named after the guys who developed the credit scoring system we use today.) But how is it computed? How do you lower it? How do you raise it?

Common sense would dictate that if you make your payments on time, your FICO score goes up. The lower your credit score, the more likely you are to be denied credit or given a loan with a higher interest rate if you were to apply for a loan. The higher your credit score, the more likely you will be granted credit and given a good interest rate. If you are delinquent on your payments, your credit score goes down. But there is much more to it. You could be paying your bills on time for years and your credit score may still be low. Or you could have a couple of late payments on your credit report and still have a good credit score.

How does the FICO score work? The FICO score can range from 300 to 850.

Here are some general tips on how to improve your credit score:

Never max out your credit cards. The FICO score takes into account the percentage of available credit you have vs. your total credit line.

Pay your credit card balances in full every month. If that is not possible, then at least pay more than the minimum payment.

Do not close your old credit accounts. The FICO score rewards you for having a longer credit history.

Cosign with someone else who has good credit. Every time the other person uses his or her good credit, you will be rewarded too!

Don't apply for too many different cards or loans at once. Your FICO score also takes into account the number of recent inquiries into your credit report by creditors. The more inquiries, the lower your FICO score.

Dispute negative or inaccurate items on your credit report. If you have any negative items on your credit report or any inaccurate items that could be adversely affecting your FICO score, then you can contact the respective creditors to dispute the information and have them update your credit report with either the correct information or have them delete the disputed information altogether.

Don't file for bankruptcy. This will cause a definite drop in your FICO score.

Don't let your house go into foreclosure. This will also cause a definite drop in your FICO score.

Don't let creditors get a court-ordered judgment against you. Judgments are part of the public record and can go on your credit report, causing your FICO score to fall. Try to resolve any financial issues with your creditors without them suing you in court for it.

Don't rely on credit counselors. Credit counselors can help you consolidate your debt and get a lower interest rate, however the fact that you are using a credit counselor will show up on your credit report and can thus affect your FICO score.

DO pay off your collection items. If you pay off an item that has been referred to collections, creditors may be willing to overlook the collection item, being that you have demonstrated that you are back on track and have brought the collection account current.
This list is by no means exhaustive. There are numerous tips on how to improve your FICO score. If you have less than perfect credit, it will take time to improve it. Unfortunately, FICO scores are not always updated in real-time, because most creditors only report to the credit bureaus (the companies that maintain your credit report) once a month. However, with discipline, given time, your credit score can be salvaged and in fact, you can raise your FICO score to impressive levels.