Your credit is a huge part of your financial well-being. If your score is too bad, you will be denied a loan, and the better your credit score is the better interest rates you will get when you get a loan. While the actual computation of how the FICO score is determined is quite complex, there are ways you can get ahead in the credit score game. Some tips are simple and easy to do; other tips take a little more discipline and often just time.
The easiest way to improve your credit score is to call your credit card company and ask for a raise in your credit limit. If you have had the card for more than just a few months, and you have never been late on a payment, there should be no problem in getting your credit limit changed. The way this helps is that most likely you will not be spending any more than you usually do, so the card company will be reporting that you are using a smaller percentage of your total credit available. For example, if you charge $1,000 per month against your $2,000 limit, you are using 50% of your available credit. If you increase your limit to $4,000 you are now only using 25% of your limit. Your FICO score increases because you now are being responsible and not racking up as much debt as you could. The other way to accomplish the same thing is to reduce the amount that you charge.
While debt is not really much fun to carry, it can be quite useful. If you are looking for a new car, and you have the means to buy it outright, consider getting a loan for part of the cost. Today’s interest rates are low; you can get a 3 year loan for as low as 2%. Credit scores look at how well you manage revolving credit (credit cards) and installment loans (mortgages, student loans, auto loans). By having a small installment loan you can help increase your score quite a bit.
Before you go and apply for a loan, however, do an annual credit report check. If you have always been on time with payments, and notice anything that is marked other than “paid as agreed” or “current” then get it fixed. The Federal Trade Commission has a web page that will show you exactly what you need to do. Getting old negatives off (they automatically drop off after 7 years, if not file a dispute), and getting problems fixed will improve your score to where it legitimately should be.Many of the other ways to get your credit score higher is to simply give it time. The length you have had credit is one of the biggest ways to increase your score, and keeping that old card open, even if you don’t use it anymore, will help show you’ve had that credit history for the longest period possible.
The credit game is a mystery to most people. But there are ways you can play the game to make it work in your favor, and many of them, such as raising your credit limit, do not require any change in your spending behavior. If you have not raised your credit limit, do so now. The phone call takes about 5 minutes, and you will usually see your limit increase when you log onto your account the next day.
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