Many people have heard of the FICO score but relatively few know how it’s calculated. That’s because the formula is a big hush-hush, top secret affair that the Fair Issac Corporation (the creators of the FICO score) keeps under tight control. The company doesn’t want the specifics of the formula to become public knowledge because individual consumers would then know how to more easily manipulate their credit scores. That could dramatically reduce the value of the credit score scale as a way to measure true credit worthiness.
But while the specific algorithms that make up the score are secret, the general credit measurements that go into the score are not. And so it is that savvy consumers of credit can improve their scores by paying attention to certain credit categories and performing specific actions. Over time these actions will add up and raise anyone’s average credit score.
You Need a Credit History
One of the primary components of any credit score is the credit history; the longer the history, the better. That’s because when you’ve dealt with credit for an extended amount of time, you’re judged to be more experienced and a better risk. Also, the longer your credit history, the less impact the occasional negative entry will have on your overall credit record. The credit history is the chief reason older consumers usually get better loan rates and terms than younger consumers.
You Need to Make Timely Payments
A long credit history will be of no use if it’s filled with late payments. Lenders want their payments on time, every time. If your history shows you can’t keep that commitment, not only will your credit score plummet, but you’ll be unlikely to even be approved for a loan or a line of credit without some heavy conditions – like a hefty interest rate or down payment.
You Need a Good Credit-to-Debt Ratio
It’s a bit of a paradox but lenders like it when you have a lot of available credit that you’re not using. For instance, if you have a balance of $150.00 on a credit card that has a $5000.00 credit limit you have a lot of available credit. This high credit-to-debt ratio is a signal to banks and other lending institutions that you can manage your credit well. When you can demonstrate that ability, your credit score goes up.
So if you can manage these particular credit actions, you can improve your credit score without a doubt. Paying your bills on time and lowering your overall debt while you’re doing it will have a positive impact on your credit score info. And when you do these activities consistently for an extended period of time, you will create a killer credit score.
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