A FICO score is a credit score produced using an algorithm developed by the Fair Isaac Corp. The score uses information from your credit report to estimate your risk as a borrower. A high score can get you more access to loans and preferential interest rates. There is no way to boost a low score overnight, but you can take practical steps to begin to raise your score.
Order a Copy of Your Report
Credit scores are based on five categories: payment history, length of credit history, amounts owed, new credit applications and the variety of credit used. Viewing your credit report will give you a better idea of which categories you need to improve.
Credit bureaus sometimes make mistakes and put false information on your credit report, which can lead to lower scores. If you find false information on your report, submit a written dispute to the credit bureau that identifies the false information and explains why you believe it to be an error, and request for it to be changed or removed. Credit bureaus are required to start an investigation of a claim within 30 days. You should have a decision accepting or denying your claim within two months.
Limit Applications for Credit
Only apply for new credit when you need it. Even though a retailer may offer 20 percent off if you open a new credit card, consider the negative impact on your credit score. New applications for credit can make you appear desperate to lenders. Each time you apply for credit an inquiry is reported on your credit report.
Not all inquiries negatively affect your credit score. First, a request to see your own credit report does not count as an inquiry. Second, you are able to shop for a car loan or home mortgage as long as you are applying within a short period because the FICO score counts all inquiries as one. However, if you spread your loan shopping over a few months, each inquiry will count separately.
Leave Unused Accounts Open
Do not close unused accounts if you are trying to raise your credit score. Even if you have no payments to make, the financial institutions holding your accounts still report that you are current with your bill for that card.
Part of your credit score is determined by how much of your available credit you use, so if you close accounts with zero balances you will increase the percentage of credit you are using. For example, if you have three credit cards and each has a credit limit of $3,000, your total credit limit is $9,000. If you use only two cards and carry a total balance of $4,500 on those cards, you are using 50 percent of your credit limit. However, if you closed the card you were not using, your total credit limit would drop to $6,000 and your credit use would jump to 75 percent.
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