An important financial concern that we often hear from clients is, “How can I improve my credit score?” First, a quick disclaimer: CameronDowning is not a credit repair or debt consolidation service. Our goal is to arm you with the education you need to establish a strong financial foundation — and this often includes advice on how to raise your credit score.
If you’re considering buying a home, taking out a loan, or getting yourself organized after a season of personal financial challenges, you understand that your credit score may determine what you can and cannot do in life.
The most widely used credit scores are FICO scores. FICO is an acronym for the Fair Isaac Corporation, founded by William Fair and Earl Isaac in the late 1950s. They developed a mathematical algorithm that predicts consumer behavior, resulting in a numerical score. These scores are calculated only from information found on your consumer credit report, which you’ll want to check regularly.
FICO scores range from 300 (low) to 850 (high). The major reporting bureaus are TransUnion, Experian, and Equifax. Every lender has different credit score qualifications, but if you’re in the upper 600s you’re doing OK — could be better, but follow the advice here and it shouldn’t be long before you reach good or excellent credit.
The Five Categories That Determine Your Credit Score
35% — Payment History
Above all, the number one thing lenders look for is that you’re repaying them on time. Even if you’re carrying a credit card balance and only paying the $30 monthly minimum, make sure you pay that amount. Be vigilant — pay on time, every time. There is some wiggle room: some credit grantors will report a payment as on time even if made up to a certain number of days late. Mortgage payments, for example, are often not reported late if made within 30 days of the due date. Check with the individual lender.
30% — Credit Utilization
This is the amount owed relative to your total credit line. The closer you are to maxing out your cards, the worse it is for your score. Do your best to keep your balance well below 50% of your credit line, ideally below 25%. Here’s an example: say you have two credit cards, each with a $2,000 credit limit, with a balance of $1,800 on each — 90% utilization. If you decide to aggressively pay them off, putting all resources against card #1 until it’s paid off while making only minimum payments on card #2, you end up with 100% utilization on card #2 for a long time. The better strategy is to bring both balances below $1,000 (50% utilization), then both below $500 (25% utilization), before paying one completely off.
15% — Length of Credit History
Good credit history continues to work for you. Don’t necessarily close accounts once they’re paid off. You may even want to make an occasional small charge, simply to keep more on-time payment history accumulating on the record.
10% — Mix of Credit
This is your combination of credit card debt, retail accounts, installment loans, and so on.
10% — New Credit
Opening one new card may not have a big effect, but opening several new accounts in a short time may adversely affect your score in the short term.
These weightings are provided by the Fair Isaac Corporation.
Start Here: Access Your Credit Reports — Now Free Weekly
To access your reports, go to annualcreditreport.com. Under the Fair Credit Reporting Act, you are entitled to free credit reports from all three bureaus. What was once an annual entitlement is now weekly, and from all three credit bureaus.
Since your credit report is the only source FICO pulls from in determining your credit score, make a habit of checking it often for irregularities. With identity theft as rampant as it is, you must be vigilant. Look for errors, unrecognized addresses, and unfamiliar lines of credit. If something is wrong, report it immediately.
One free tool we recommend is CreditKarma.com. They provide your TransUnion and Equifax credit reports and scores, updated weekly, at no charge.
Then Find a Source for the Actual Credit Score
You won’t find a free score on annualcreditreport.com. But you’ll find approximations on your credit cards. Login, and there’s typically a link to take you to some type of score. I say some type, because there are various types out there. Alternatively, you can pay at one of the credit bureaus a nominal fee. NOTE: when applying for a mortgage in our experience the score the mortgage lender pulls up is often more favorable than the one we access online.
Challenge Credit Report Errors
If you see an error, challenge it! The credit bureau reports information provided by creditors, and mistakes do happen. Say a department store has incorrectly reported an account you paid on time as charged off. You contact the credit bureau online and file a dispute. They go to the creditor to verify the information. If the creditor cannot verify it within 30 days, it comes off your report. Simple as that.
Do you have questions about working with CameronDowning? Our Frequently Asked Questions may provide some answers. n
