Wednesday, July 19, 2006
Three Strategies to Improve Your FICO Score - Part One
It used to be that "people" made decisions about your credit
worthiness. You knew your banker and your handshake was all the
collateral you needed. Those days are long gone, and now a
single number - your FICO score - determines your credit
worthiness.
Although there are several credit models, the most commonly used
is FICO, based on a model created by Fair, Isaac Company. Their
consumer website is myfico.com, and you can find information
about the FICO credit scores there.
Your FICO credit score can be used to determine your interest
rate and how much credit a lender will give you. So taking care
of your score, and keeping your credit clean will save you
money.
Preserving your FICO score, and improving it, is not difficult,
but it may take time. Here are some tips to maintain and improve
your score, based on three credit situations.
Strategy One: Obtain a Credit History
There are many reasons you may have no credit history. Maybe
you're just starting out, maybe you pay cash for everything and
have never needed a loan. In any case, if you have no credit
history, your FICO score is likely to be low.
The easiest way to raise your score is acquire a loan, and pay it
off on time. In general, installment loans are weighted more
heavily than credit cards. In other words, you will improve your
credit score faster if you buy goods with an installment loan,
rather than acquiring a credit card.
Another way to acquire a better credit history is to take $1000
and open a 6 month CD account at a financial institution. Now,
get an installment loan for $1000, using that CD as collateral.
Now, here's the trick. Take the $1000 loan, and open another 6
month CD account at another institution. Take another loan for
the $1000 at the second institution. Do this one more time.
Now what you have is 3 loans. Pay the minimum payment for 6
months. In the last month, cash out your CDs and pay the loans
off. You now have a credit history, and did not go into long
term debt to get it.
worthiness. You knew your banker and your handshake was all the
collateral you needed. Those days are long gone, and now a
single number - your FICO score - determines your credit
worthiness.
Although there are several credit models, the most commonly used
is FICO, based on a model created by Fair, Isaac Company. Their
consumer website is myfico.com, and you can find information
about the FICO credit scores there.
Your FICO credit score can be used to determine your interest
rate and how much credit a lender will give you. So taking care
of your score, and keeping your credit clean will save you
money.
Preserving your FICO score, and improving it, is not difficult,
but it may take time. Here are some tips to maintain and improve
your score, based on three credit situations.
Strategy One: Obtain a Credit History
There are many reasons you may have no credit history. Maybe
you're just starting out, maybe you pay cash for everything and
have never needed a loan. In any case, if you have no credit
history, your FICO score is likely to be low.
The easiest way to raise your score is acquire a loan, and pay it
off on time. In general, installment loans are weighted more
heavily than credit cards. In other words, you will improve your
credit score faster if you buy goods with an installment loan,
rather than acquiring a credit card.
Another way to acquire a better credit history is to take $1000
and open a 6 month CD account at a financial institution. Now,
get an installment loan for $1000, using that CD as collateral.
Now, here's the trick. Take the $1000 loan, and open another 6
month CD account at another institution. Take another loan for
the $1000 at the second institution. Do this one more time.
Now what you have is 3 loans. Pay the minimum payment for 6
months. In the last month, cash out your CDs and pay the loans
off. You now have a credit history, and did not go into long
term debt to get it.
