How to Improve Your FICO Score
Ninety percent of lending institutions rely on your FICO score to determine your creditworthiness, so making the effort to improve your FICO score can help you and your small business get the funding you need.
Of course, like many worthwhile pursuits, it will take time and patience. There is simply no quick fix for a bad FICO score. But there are a number of things you can do that can lift your score. Your primary goal should be to demonstrate your ability to responsibly manage credit over time. Here are a few tips for doing just that.
Improve Your Payment History
The best way to do this is to pay your bills on time. Overdue payments -- and collection actions against you -- will definitely have a negative impact on your FICO score. If you’ve missed any payments, get current. And make a concerted effort to stay that way. The longer you can demonstrate a history of paying your bills on time, the better your credit score will be. However, note that paying off a collection account won’t remove it from your credit report. It will stay there for seven years.
If you’re having trouble making ends meet, contact your creditors -- or go see a good credit counselor -- to try and work out a payment plan. This won’t have an immediate impact on your credit score. But if you actively seek to better manage your credit and pay your bills on time, your credit score will improve in the long run.
Manage Current Debt and Expenditures
Keep the balances on your credit cards and other sources of revolving credit low. High levels of outstanding debt can hurt your credit score. Don’t close unused credit cards to try and raise your credit score. Owing the same amount of money while having fewer open credit accounts can actually lower your FICO score. So can opening new credit cards that you don’t need to increase your available credit.
Build a Credit History
If your credit history goes back only a short time, it’s important not to open too many new accounts too quickly. Doing so will lower your average account age, which can hurt your FICO score if you have a short credit history. If you’re a relatively new credit user, opening too many accounts too quickly is liable to look risky to creditors.
Be Smart Going Forward
Establish an improved credit history. Open new accounts responsibly and pay them off on time. This will raise your credit score in the long term.
Finally, it’s helpful to check your own credit report. As long as you do this directly through credit reporting agencies or through an organization authorized to provide credit reports to consumers, it will not affect your FICO score.
Susan Konig is a freelance writer in New York. She has been writing about finance for 15 years, for publications including Crain's New York Business, The New York Times, and Registered Representative, a national publication for financial advisors.
