Improving Credit Score - How Credit Scoring Works and How to Improve Yours

How Fair Isaac & Co calculates your Credit Score is is a closely held secret - even the best lenders do not know the exact formulas used. It is possible, however, to improve your score using some common sense.

Solid Advice

The goal of a FICO score is to determine how much of a risk you are to a lender. The most reliable approach to good credit then, is to be a low risk borrower. If your Credit Report shows that you are sensible and reliable with money that you borrow, then your accompanying FICO score will typically reflect that as well.

While it is difficult to increase your score over the short run, here are some tips to increase your score over a period of time.

• Pay your bills on time. Late payments and collections can have a serious impact on your score.
• Do not apply for credit frequently. Having a large number of inquiries on your credit report can worsen your score.
• Reduce your credit-card balances. If you are "maxed" out on your credit cards, this will affect your credit score negatively.
• If you have limited credit, obtain additional credit. Not having sufficient credit can negatively impact your score.

Accurate Credit Information

Since your Credit Score is based upon the credit history found in your Credit Reports, it is wise to make sure that this information is accurate. Credit information ultimatly comes from people so mistakes are possible. The rise in identity theft is also a concern. Order your Credit Reports from each of the three Credit Bureaus at least once a year and dispute any false information.

Score Breakdown

In the past, Fair Isasc & Co. has identified the following percentages that make up your credit score. Obviously, this breakdown can change at any time but understanding it can be useful.

• 35% based on: Late Payments, Bankruptcies, Collections, Judgments
• 30% based on: Current Debts
• 15% based on: How long accounts have been open and established
• 10% based on: Applications for new credit or Inquiries
• 10% based on: Type of credit (credit cards vs. finance company loan, etc.)