FICO credit scores remain a source of confusion to the average American consumer. Surveys have indicated that most of our countrymen know little more than that a number between three hundred and eight hundred shall impact future lending opportunities. In actuality, however, the process by which your FICO credit score are calculated remains - if not, technically, simple - relatively easy to understand, at least in the abstract.
Still, if you're already struggling under the yoke of ever enlarging credit card debt and prone to feeling battered about by outsized forces beyond your control, a lack of comprehension regarding the famously circuitous FICO credit scoring system can often add to the overall despair. However, even though elements of the FICO credit rating may take a bit of time for newcomers to the world of debt analysis to fully appreciate, the ability to change credit scores for the better remains within the power of most every consumer given sufficient time and discipline.
Your credit rating is an important tool for lenders to determine your eligibility for a loan, as well the interest rate assigned. Those with the best credit ratings receive the best credit opportunities at the lowest rates. In general, lenders will look at the past two years of your credit history, but negative actions like late payments remain in your credit report for seven years. It is important to note that there is a difference between a credit report and a credit score. A credit report is a record of your credit activity; a credit score is a number calculated according to your credit history. Whether or not you have a sterling credit rating, there are a number a number of things you can do to improve both.
1) Limit credit card applications
Though it is advisable to maintain healthy credit activity (the average consumer has eleven credit obligations, four of which are loans such as auto or student loans), it is detrimental to your credit score whenever a lender requests a copy. Each time you apply for a credit, your credit score will be looked into.
2) Pay bills on time
A consistent record pf paying the credit card bill on time or early will raise your credit score. If you are 30 days late in making a payment, it will drop your credit score by as much as a hundred points. Arranging with your bank to have your bills made by automatic payment can help reduce this risk.
3) Manage the number of accounts
It is to your benefit to maintain accounts with long histories, but keeping too many credit accounts open that you don't use increases your risk of identity theft.
4) Keep balances low
It is advisable to spend only thirty percent of your available credit limit; maxed out credit cards can lower your credit score. Try to distribute spending amongst all cards.
Your credit rating is a direct and accurate reflection of your money management habits. Actively raising your credit rating will save you a great deal of money in the long run. Just as importantly, employers and landlords are looking at these scores when choosing candidates. Keeping up and maintaining the numbers can only have a positive impact on your financial future.
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