Your credit score is an indication to the lenders about how creditworthy you actually are! It is usually availed by checking your info and data through an algorithm. Let's take you have recently checked your credit score, and you found it to be 650, so how would you be able to understand that whether it is a good credit score or a terrific one? A 650 credit score on the 350-800 FICO scale (derived from Fair Isaac Co, the official name of a company, not a credit reporting agency that creates credit scores by using the data provided by the three major credit reporting agencies, namely, Equifax, Experian or TransUnion) is considered to be fair. Such individuals are known as subprime borrowers and are offered less ideal terms and higher rates of interest for loans and credit cards.
The best thing to improve your credit score is to take a note of all those things that are restricting your score to rise. There are plenty of credit repairing companies who would promise improving your credit score. The best credit repair companies always take up the client’s priority.
The basic reason for a user's craving to enhance the credit score is to lower the interest rate on loan.
The FICO score ranges are as follows:
- Bad Credit: 300 – 629
- Fair Credit: 630 – 689
- Good Credit: 690 – 719
- Excellent Credit: 720 – 850
- How fast can you Raise credit score?
FICO score improves through:
- On-time payments
- low debt-to-income ratio
- A strong credit history
Following are the five factors that generally contribute to improving your credit score:
- Payment history: If you have missed your payments or is late in making it, your credit score will consequently come down. However, a user with a long history of paying bills on time will certainly have a higher credit score.
- Rate of credit utilization: This is defined as the amount of credit in comparison to the amount of credit available. Your credit score is inversely proportional to the ratio. Target to keep your utilization ratio under 30%, however, in order to maintain the best scores; you need to keep it under 10%.
- Credit history: This signifies that for how long you have been using your credit. It also determined the average age of all your open accounts. The length of the credit history is directly proportional to your credit score.
- Number of accounts: The number of open accounts you own and the number of accounts you carry your balances. It is good to have more number of accounts than actually having one single account with a lot of balances in it.
- Credit mix: A mixture of different kinds of credits, both loans and credit cards is more preferable.
- Hard inquiries: Just as you apply for a loan or a new credit card, the lender shall ask you for your credit report. Too many hard inquiries can lower your credit score. The impact of these hard inquiries actually goes down as the inquiries get older.
- Negative information: Negative effect can fall on your credit score if the credit report contains any negative financial information such as a collection account or bankruptcy.
Here are some of the tips that you must consider following in order to improve your credit score:
- Good financial habits: It is important to incorporate smart personal finance in order to improve your FICO score. Using budgeting software and setting up emergency funds would ensure that you stay at the top.
- Keep a track of your credit report: In 2012, it was found that 1 out of 5 people in America had got an error on their credit report. Errors can cause a negative impact on your overall credit score, so, it is advised to report the disputes and improve the score.
- Follow the course: You need to practice these steps for a longer time, in short, you need to be consistent. Banks will notice your history of making timely payments, which in turn, shall ultimately benefit you for fetching cheaper loans.