There are hundreds of variables that go into calculating a credit score. Your credit score represents how well you’ve managed your credit history over time.
One thing about credit history is that you have the power to change it.
If you have not managed your credit history well in the past, make 2023 the year you get back on track. You've got about 12 months in the year so make them count towards improving your credit scores.
1. Reduce credit card debt.
The smaller your percentage of debt compared to your available credit the better. That's because in the calculation of your FICO score, how much money you owe to lenders is the second most important factor in calculating your credit score.
Reducing the amount you owe will raise your FICO scores. This is also referred to as credit utilization.
Owing 30% or less of your available credit limit is a good measure. But if you want the best scores owing 10% or less is even better. If you owe $100 on your credit card and have a $1,000 credit limit on it, your ratio is 10 percent which will help raise credit scores because your credit utilization is low.
2. Pay at least the minimum on time.
Paying your monthly bills on time can help improve your credit score. Your payment history accounts for approximately 35% of your score. Consistent on-time payments will make the difference in good or bad FICO scores.
When you think you are going to be late contact the creditor to arrange payment and ask that it not be reported to the credit bureaus. One late payment can reduce a good credit score by as much as 100 points.
It's not uncommon to experience financial difficulty from time to time. Your creditors know this and may be willing to work with you to maintain your credit scores, especially during the coronavirus outbreak.
Many creditors are agreeing to skipped payments without any negative impact on your credit history.
Don't hesitate to contact your creditor, you may find that your bank is willing to offer assistance that it hasn't publicly advertised based on your financial situation.
3. Know when your credit accounts report plus maintain small balances.
There should be at least 3 or 4 credit accounts currently reporting in your credit history. It could be a mortgage, auto, personal or student loan along with a 2 or 3 credit cards with low balances.
The biggest contributor to your FICO credit score is payment history so not only are on-time payments important but you can also raise credit scores by knowing when your creditors report those on-time payments to the credit bureaus.
To find out when your credit card company reports payment history call the company and ask when your balance gets reported to the credit bureaus. That day is typically referred to as the closing date (or the last day of the billing cycle) on your account. The closing date is totally different from your payment due date.
Even if you pay your balance in full every month, if your payment is received after the reporting date, your reported balance could be high which may decrease your credit score because your utilization ratio appears high.
By knowing when your credit card company reports payment history to the credit bureaus, you can pay your bill before the closing date. That way, your reported balance will be low or zero.
The FICO score will then use the lower balance to calculate your score. This lowers your utilization ratio, giving you the opportunity to raise credit scores.
4. Credit variety can help raise credit scores.
Having credit cards and installment loans with a good payment history will help your credit scores. If your credit history has been limited to only one type of credit it does not show how well you manage your overall credit picture.
Installment loans can be a mortgage, car, or personal loan and even a student loan is considered an installment loan. Direct lenders that cater to poor credit can help in getting an installment loan reporting to your credit reports.
If you are unable to qualify for a personal loan consider a secured personal loan from Self Lender. With Self Lender you don't need money upfront to obtain an installment loan. Save money with an FDIC-Insured Certificate of Deposit (CD) while building your credit.
Funds are held in a CD; however, you're not required to make a deposit. Because the bank funds the CD for you, and the monthly payments you make cover the loan balance, you will not be entitled to any interest from the CD, unlike normal CDs where you make upfront deposits. However, the money you've paid into the CD is yours to keep.
Open a Self Lender loan with terms as low as $25 per month for 24 months. At the end of 24 months, you receive $525 plus interest plus 24 months of payment history reported to Experian, Transunion and Equifax credit bureaus.
5. Have something positive for FICO to calculate.
Some people just don’t like dealing with credit cards and it’s a reasonable position. They do not want to owe anyone. But people with no credit cards tend to be viewed as a higher risk than people who have shown they can manage credit cards responsibly.
You cannot expect to have a high FICO score with little to no current credit accounts reporting to the bureaus. It’s just not going to happen.
Additionally, if the only credit you have is negative, it's imperative you add positive reporting accounts to your credit history.
What you do with your credit history directly reflects in your FICO scores. Get an easy to qualify for credit card reporting to your files if you have no current reporting creditors.