Your credit (FICO) score is imperative to financial health. Bad or damaged credit does not have to be the end of the story. There is no overnight magic for this situation. However, there are ways to improve your score that take time and persistence.
The best way to start this process is to get a copy of your credit report. You can receive a free yearly copy of your credit report from www.annualcreditreport.com. After receiving the information from the three major bureaus, you can see which issues need to be addressed.
A credit score is a numerical expression of credit worthiness. There are five parts of this calculation. It is important to understand how this calculation works to improve your score. There are five different parts to a credit score.
Payment History - 35% of score – On time bill payments
Debt How much you owe 30%
Length of credit history 15% How long have your had credit
New History 10% New credit applications
Other 10% Minor factors; having a mix of credit type
After receiving your credit report, examine it for errors that negatively impact your score. These can be disputed by a written response to the agency that has the incorrect information. By removing negative remarks and inaccurate information, your credit score will likely improve.
Payment History accounts for the largest chunk of a credit score at 35 percent. The best way to improve your score is to pay your bills on time. Set up an automatic bill pay to insure timely payments.
Debt accounts for 30 percent of your score. Get out of debt by changing your lifestyle. Set a budget and sell those items you no longer need. Stop spending and start paying off those bills. Credit counseling is recommended to address debt in the best manner.
Length of credit history is 15 percent of your score. Leave accounts open as long as possible for history documentation. Pay these accounts down if not off. Do not leave them idle for too long or they may be closed. Some experts recommend that you periodically make a small purchase and pay that card off the same month.
New History is 10 percent of your score. New credit applications can lower your score. Multiple queries for new credit can make you appear desperate for money. Only apply for new credit as needed. If you must apply for new credit, make those new applications within a thirty day period.
Other factors account for 10 percent of your score. Credit bureaus view the type of credit you have to see if there is a mix of credit including credit cards, auto loan payments and mortgages.
Additional Credit Tips
Do not make new purchases on your credit cards unless you can pay it off that month.
Get current on delinquent accounts.
Avoid new credit card applications.
Leave accounts open and only use as needed.
Pay off debts If delinquent, contact a credit counselor and work out repayment plan.
Work with your creditor on a payment plan.
Be persistent and pay your bills on-time every time. Address your debt problem and work out a plan to improve your financial picture and credit score. It may not happen overnight, but with a plan and consistent responsible payments, your credit score can improve.