FICO scores are the most commonly used credit score by banks and other lenders in determining how creditworthy a borrower is. The higher the score, the less likely the borrower is to default on a loan, which makes the borrower a greater credit risk. Banks are more likely to accept applications for loans from people with higher scores and offer them lower interest rates. If you have a low score, it will take time but you can rebuild your FICO score.
Start Making Payments on Time
Your payment history accounts for the largest portion of your credit score at 35 percent. While there is nothing you can do about your past payments, you can start ensuring that in the future you make your payments on time. Most credit information remains on your report for seven years except personal bankruptcy, which stays on for 10 years, so eventually your poor credit can be erased if you do not continue to leave a trail of late payments or defaults. Also, your recent credit information is weighed more heavily than in the past, so your score will start to improve as soon as you start making your payments.
Leave Unused Accounts Open
Closing accounts that you have had delinquencies or other negative information from will not remove that information from your credit score. Closing accounts that you no longer use might actually hurt your credit score. Part of your credit score is based on the ratio between how much credit you have available to use and the amount of credit you are actually using. Obviously, paying down the debt to reduce this ratio is the best option. However, if you close accounts you are fighting your attempts to lower this ratio because you are decreasing your available credit. For example, if you have two credit cards, each with a credit limit of $1,500, your total available credit is $3,000. Assume you only use one and carry a balance of $1,000 on it, you are using 33 percent of your available credit. If you close the other card, you would only have $1,500 in available credit and your percentage of credit use would jump to 67 percent.
Minimize Inquiries on Your Credit Report
Each time a lender checks your credit report the inquiry is recorded and your credit score takes a small drop. If you are applying for a number of credit cards in a short period of time, you appear desperate to lenders who become less likely to give you loans. If you do not have a very long credit history, only apply for new credit when you need it. There are two types of applications that can circumvent this rule: when you apply for a car loan or a mortgage. As long as your applications for either type of loan all occur within a short time of each other, they will all be counted as one inquiry for the purposes of calculating your credit score.
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