How To Improve Your FICO Credit Score

By Pinyo, on May 27, 2009

Regardless of your financial situation, your FICO credit score is an important aspect of your finances. This is especially true if you’re planning to borrow money for any reason. With a better credit score, you could get better interest rates and terms on your mortgage, car loan, and other type of loans. As such, it’s a good idea to do what you can to raise your FICO credit score.

If you don’t know your score yet, here’s how you can get your FICO credit score for free. It only takes a few minutes to sign up and find out.

How Your Credit Score Is Determined

Before you can improve your credit score, you should have a basic understanding of how your credit score is calculated. In general, there are 5 key factors that influence your score.
FICO Scroe Breakdown

Graphic from myFICO’s About FICO scores page

Factors	Weight
Payment History. Do you repay your debt on time? Late payments, collections, and bankruptcy are also included here.	35%
Credit Utilization, or Debt to Credit Ratio. How much money you owe compared to your credit line?	30%
Length of your credit history. How long is your track record? How old is your first credit card?	15%
Credit Mix. Do you have different types of loan — e.g., mortgage, car loan, business loan, revolving credit, etc.	10%
Credit Inquiries. Do you have a lot of applications for credit recently?	10%

Improving Your Credit Score

Now that you know how your credit score is determined, it’s easier to put together some guidelines to help you improve your credit score.

Payment History

Pay on time and avoid late payments. The easiest way is to pay as soon as you get the statement or schedule your payment in advance. If you still make your payments by mail, read this article on how to avoid late payments by using proper envelope.
Avoid collections. Make sure you can make your payments before adding to your debt.
Avoid bankruptcy. Bankruptcy stays on your credit report for 7 to 10 years.

Credit Utilization

Don’t max out any of your credit cards.
Don’t get store credit cards which often offer low credit limits — sometimes equal to your purchase amount, which automatically gives you 100% utilization rate for that card.
Ask for higher credit limits.
Pay down your debt.

Length of credit history

Keep your old credit cards around. Don’t close these account even if you don’t use them (unless you have to pay a fee).

Credit Mix

There’s no sense in getting into debt just to improve your credit mix, so I’d just let this one be.

Credit Inquiries

Understand the difference between soft pull and hard pull. Avoid activities that create a hard pull because these impact your score negatively.

It’s important for you to note that it takes time for your credit score to improve, so please be patient.

Do you know another credit score improvement tip? Please share yours here.

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Pinyo is the brain behind Moolanomy personal finance blog and a few other web sites. If you like this article, please subscribe for free daily email updates.

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10 Comments

Anthony
May 28, 2009, 5:07

Excellent advice. Poor credit scores add to the burden of this recession.
Kenneth Quinn
May 28, 2009, 5:24

Hey Great post!!
really nice post i liked it’good advice:)
craig
May 28, 2009, 12:28

After recently reading I Will Teach You to be Rich I used one of his techniques to hopefully raise my FICO score. I have no CC debt and pay on time every month and called up and asked them to raise my credit limit. I have no need for the raised limit other than it betters my ratio and could help my score a bit.
Patrick
May 28, 2009, 14:26

Very solid tips! The only things I will add is to have both diligence and patience. It can take some time to see your score change, and how quickly and how much your score changes depends on many factors.
Pinyo
May 28, 2009, 14:51

@craig – Thank you for sharing that tip. I saw it on Bargaineering as well.

@Patrick – Great add. I think I’ll update my article so people will know that it takes time for the score to change.
Wise Money Matters
May 29, 2009, 12:21

Uh… While I agree that a good credit score is better than a bad credit score, the only thing a good credit score means is that you like debt and are successful at managing lots of it. So I disagree with the opening sentence. I don’t feel my credit score is an important part of my finances. I’ve put financially sound principles into my life over the past years and was able to pay cash for my last car. My goal is in 3-5 years have my mortgage (my last debt remaining) paid off at which point all future house purchases will be in cash.

So while these principles might be good for someone with a low credit score who is trying to buy a house, the ultimate goal should be no credit score at all.
DDFD
May 30, 2009, 9:15

Solid advice, but there is a great deal of time and patience involved in improving scores . . .
Gordon
August 4, 2009, 6:25

Knowing about the various constituents that constitute your Credit Score makes credit score repair an easier process.
Frank Fitton
August 24, 2009, 13:59

There certainly are no quick fixes in attempting to raise your credit score. The most important thing is to stay on top of things and know whats in there. There very well could be errors in your credit report due to things misrepresented, even fixing these is going to take time. In order to raise it though you have to know what’s in it for sure, as well as exactly what effects it.

One area I think that is very important to address in these times. Is to make sure that you don’t lose any of your cards. Companies are canceling cards that are not being used. This could be really damaging if its one of your oldest cards. Remember this, and just use the card every once in awhile to keep it in rotation. You need that available credit in theory at least.

Anyone who’s interested can check out my blog on how to improve your credit score at… http://www.thedebtgazette.com/.....dit-score/
beryl maureen hammond
January 22, 2010, 8:59

knowing how your credit score is determined makes it easier to improve your score.

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