Learning how to raise your credit score isn’t a hard process to understand but it take time to put a plan into action and make it successful. Before you can start the process of improving your credit, you need to understand the factors that control your credit score. Your credit score is based on 5 things: your payment history, the amount of money you owe,  the length of your credit history, how much new credit to you have, and the different types of credit you use. According to this chart from FICO, it breaks down like this:

So, based on this information we can chart a course on how to raise your credit score. This information will apply to people who already have credit; I will cover how to start the process of even getting credit in the first place in this article: How to Even Begin Getting Credit.

Step One: Pay every single bill on time, every time. As you can see, this accounts for 35% of your credit score, so lenders obviously consider this a major component of responsible credit use. It is your best interest to not get over extended, but if for any reason, you can’t pay a bill on time, contact the company. This includes credit card companies, banks, mortgage companies, and even the electric company. If you can’t pay, call them up, explain the situation and see if you can skip a month’s payment. This may not work every time, but many companies have the ability to allow you to skip a payment and this will be much better than getting a ding on your credit report.

Step Two:  Reduce the amount of money you owe. It’s probably not possible to put down $100,000 on your house, but definitely start banging away on any smaller debts you owe. Pay down what you can. Start now, pay down credit cards, student loans, personal loans, car loans, and anywhere else you owe money. This is 30% of your credit report so get busy!

Step Three: This step isn’t available to everyone, only to people that may have some older credit cards available that they aren’t using. Since 15% of your credit history is based on the age of your credit history, you want to show as long a credit history as possible. One easy trick to do this is to keep some older credit cards and occasionally use them. Always pay off the balance quickly, but this shows that you have “active” credit going back a long time. It’s simple, it’s easy, it’s effective.

Step Four:  Stop applying for new credit. If all of sudden, you show a spike in applying for new credit this will damage your credit. It’s only 10% of your credit score but when it comes to how to raise your credit score, we need every point we can get our hands on. Now, don’t worry if you’re shopping around for different house or car loans, because the credit reporting companies expect this and make allowances for these types of loan shopping around. But if you do go shopping for a car or house loan, you want to make all your loan applications in a short time frame, so that all the loan applications are obviously for the same purchase.

Step Five: Vary the types of credit you have available. This may not be something that most people will use in the short term to improve credit, but it does factor into 10% of your score so it’s worth mentioning. It reflects better on your credit score if you have different types credit available like a house loan, a car loan, credit cards and a personal loan, this shows that you can use different types of credit responsibly which makes you a lower risk. Now, this does not mean you should run out and get a car loan because it would help to improve your credit because this would be a violation of Step Four, but I do think it’s important to understand how credit actually works.

I hope this article helps you figure out how to raise your credit score. It’s really not that difficult, it is simply making small incremental steps that when taken together will begin to improve your credit score. You start to give the impression of good solid credit use so that you can then be considered a good credit risk and get the best loan rates available.

A lot of people are confused by credit. They don’t understand it; they don’t know how to use it, how to repair it, or even what it means. I’m hoping this article will remove some of the mystery from understanding your FICA credit score. To begin with, you should now that it is actually FICO credit score which stands for Fair Isaac Corporation which developed the model currently used to determine credit scores. One thing I was surprised to find out is that each of the three major credit reporting bureaus has their own version of a FICO score, so everyone has essentially 3 separate FICI scores. Equifax uses BEACON score, Experian has Experian/Fair Isaac Risk Model and TransUnion has EMPIRICA. There will be slight variation in each of these reports, but the point difference should be less than 75 points in my experience.

Although you’re allowed to get a copy of each of your credit report for free each year, this does not apply to your FICA credit score. Usually you have to pay a small fee to get a copy. If you apply for a loan from a bank, sometimes if you ask nice, they’ll give you a copy.

The FICA credit score is used by lenders to get a general sense of your credit worthiness. Your credit score will determine if you qualify for a loan and if you do qualify for a loan, what type of interest rate you will get. People with better credit get better loans.

This is a quick view of the FICA credit score:

Overall, your FICA credit score is based on:

A lot of people view credit reporting as a sort of mysterious process that they have no control over, but the exact opposite is true. Except for extreme cases like identity theft, you do have direct control over your credit score. You can directly affect your credit score either negatively or positively. All banks want to see when they are deciding if you are a good candidate for a loan is that you are a responsible user of credit. Do you keep your debt low and pay your bills on time, this is the main concern of lenders, and this is why this counts for 65% of your credit score. The other factors such as how long you’ve had credit, the types of credit you have available, and new credit are not as important to lenders. Don’t get me wrong, they’re still important, they count for 35% of your credit score, but on time bill paying and lower balances are the single most important aspect of your FICA credit score.  

If you’re interested in improving your credit, I hope you’ll check out some other articles I have available on the subject. Credit is something that everyone should understand, because bad credit can end up costing you dearly. Bad credit may mean you can’t buy a home or a car. It also means you’ll pay more for any loan you do get which can end up costing you tens of thousands of dollars extra for a house versus someone with good credit and a better loan.

Here is a picture that gives you a quick view of your credit score:

Ever wonder how your credit compares to the rest of the population? Here’s an overview:

Your credit score is based on 5 major factors as shown here:
 

So, any fix credit score plan needs to address these 5 facets of your report. The first thing you need to do is get copies of all three of your credit reports from Equifax, TransUnion, and Experian. You are allowed one free credit score report per year from each of these companies. Each of these companies has their own FICO score for your credit report, so you have 3 different FICO scores. These FICO scores will not be available in your free credit report but you can pay an extra $20 to purchase them if you want. For our purposes here to establish a fix credit score plan of action, we can get all the information we need from the free versions so you don’t need to buy the FICO scores.

The first thing you need to do is examine all you credit reports for any errors. If you notice anything that is incorrectly reported on your credit report you should contact the credit reporting agency and ask to have the error removed. You will need to provide supporting documents, for example that you actually paid of a credit card debt and that no balance is due. Any mistakes that you found should be immediately addressed. You may some minor differences in each of your three credit reports and this is strange but completely normal.

OK now that any errors have been addressed, you need to start actively working on your fix credit score plan. As you can see from the pie chart above, the two areas that count for most of your credit score are the “payment history” category and the “amounts owed” category. These two sections alone count for 65% of your overall credit score, so this will be the main focus of our fix credit score plan.

The “payment history” category is exactly what you would think; it keeps track of all your late payments. Every late payment counts against your credit. This category keeps track of how many accounts are paid on time, how many are late, how late they are, how many have gone into collections, and whether you have filed bankruptcy. One or two late payments aren’t enough to sink your credit, but if you show a history of being consistently delinquent, this starts to look bad. This means that from now on, you need to pay every single bill on time. This is 35% of your credit score; it is unavoidable and not negotiable. The credit reporting agency doesn’t care if you were downsized, lost a paycheck because you were out with the flu or needed to replace your transmission. One thing you can do if you fear you will miss a payment or be late on a payment is to contact the company you owe money to and try to make an arrangement to skip a payment. A lot of companies have some leeway with this, it will usually cost you some extra interest, but it will avoid a bad mark on your credit.

The next major category “amounts owed” is based on how much credit you have available versus how much of your credit you are using. If you have $75,000 in credit available and have it all maxed out, this is not good. Someone with a lower credit limit of say $20,000 but with only $100 charged may actually be much better off credit-rating wise. This category also includes how much you owe on all your different types of accounts such as credit cards, mortgages, and personal loans. For example, secured loans such as those on real estate are expected to have a higher balance while a high credit card debt will reflect much more poorly on your score. So, what this means is that you need to dramatically reduce your overall debt, especially credit card debt and personal loan debt.

A lot of people are looking for a quick fix credit score solution, but I’m sorry to report no such solution exists. Quick fix credit score repair is a myth. The only way to repair your credit score is with slow deliberate action and to stop making the same mistakes that got you into trouble in the first place. If you follow just these two simple steps laid out here, pay all your bills on time and reduce your debt, you will able to raise your credit score. It won’t happen overnight, more like over the course of two to three years, but it will happen. You don’t get bad credit overnight and you don’t fix credit score problems overnight either.

A lot of people are curious about their credit score range and exactly what it means in terms of their ability to get loans and what kind of interest rates they will get. All lending institutions have their own formulas they use to determine who will qualify for what type of loan, but this article will give you a general run down of what your credit score means in terms of a real world loan example. Basically the higher your risk level, the higher your interest rates. A low credit score means you’ll pay more for the “privilege” of getting a loan. Banks are essentially gambling on whether you are a good risk or not. A higher credit score range means you will pay a lot less over the life of a loan than someone with a lower credit score range. And I mean A LOT LESS.

Check out these numbers given for a $225,000 home at the national average APR provided by myFICO.com:

As you can see, according to myFICO, someone in the top credit score range of 760-850 will get an APR of 4.69% resulting in a monthly payment of $1,166 versus someone from the lowest credit score range of 620-639 who will only get an APR of 6.28% and will make monthly payments of $1,390. This is a $224 difference paid each and every month. Over the course of a 30 year loan, this will add up to a difference of over $80,000. This is substantial. Bad credit will cost you money. Bad money will keep you from buying a home or a car. And sometimes bad credit can keep you from getting a job.

Remember that although a bad credit score range may seem like the end of world, it can be only temporary if you are willing to work at improving your credit. There are no quick easy fixes, but you can slowly begin to raise your credit score range with some simple easy tips that you will find on this website.

1)  Pay your bills on time.

2)  Reduce the amount of outstanding debt you owe.

3)  Don’t keep applying for new credit cards (don’t cancel the ones you  have, just stop using them and pay them down). 

4)  Make sure to look at your credit report once a year to keep an eye on it, this helps you correct mistakes and keep an eye out for possible identity theft. A good way to watch your credit is to pull up just one of your free credit reports every three months that way you are rotating your free reports and can see how things are progressing.

5)  If you have a limited credit history and feel this could be working against you, you can get what is referred to as a secured loan or a credit building loan. This basically means that you give the bank $1,000 and they then loan you $1,000. Seems odd perhaps but this is a valid way of building up your credit history.

6)  Get a credit card – but only do this if you have no credit history at all. Sometimes it is easier to get a store credit card so this may be a good route. Charge a very inexpensive item and pay for it over time. Only buy something for like $50 because you’re trying to improve your credit score not pay huge amounts of interest. Be sure to make all your payments on time, because even one late payment can have a negative impact.

I’m sorry to report that fast credit repair is a bit of a myth; truth is Fast Credit Repair is a whole lot sexier than the more honest Slow Credit Repair. That’s not to say that you can’t take some quick easy steps to start improving your credit today, only that these steps will take some time to work and yield positive results. I can’t tell you exactly how much time it will take to raise your credit score, because each case is different, but I can tell you that if you follow these steps you will dramatically improve your credit rating. This may not be the fast credit repair you were hoping for, but it’s the only thing that works.

FICO rates you credit score on 5 different criteria, weighing each according to what is considered to be the most important. This pie chart is from the FICO website and shows you exactly what your credit score is based on:

So, you can see that the areas where you would get the biggest bang for your buck are in the areas of payment history and amounts owed. These two areas alone account for a whopping 65% of your credit score so this is a good place to start your credit repair plan.

The Two Main Places to Start Your Credit Repair:

Payment History – From now on, you need to pay every single bill on time. Even if you are a “little late” this can have a bad effect on your credit, so you need to resolve to start paying all your bills in a timely manner or suffer the consequences.

Amounts Owed – You need to seriously reduce this amount. This is the amount of overall debt you carry; it includes mortgages, car loans, student loans, credit cards, business loans, and personal loans. Another important part of this Amounts Owed section is the amount of credit you are using versus the amount of credit you have available. If you have all your credit cards maxed out, this will reflect very poorly on your overall credit score, so you need to work on reducing your debt.

This may not be the article on fast credit repair that you were hoping for, but anyone selling fast credit repair is selling false hope. You can improve your credit score, you can get better loan rates, and you can qualify to buy a home, but it won’t be fast, it will take time.

You’ll see a lot of companies offering credit restoration, fast credit repair, credit report repair or other “solutions” to miraculously improve your credit rating, but the fact is that credit restoration is a slow tedious process. Most people don’t go to sleep one night with excellent credit and then simply wake up the next morning with bad credit, it’s usually a slow descent into bad credit and getting out of the hole takes both time and work.

Although some of these credit restoration companies are legitimate and may offer you some help in improving your credit, you need to be aware that some of these companies are scams, so you need to do your homework. You should check out the credit restoration company with the Better Business Bureau (BBB), verify that the company is licensed, and I’d also do a quick Google search to see if any customer complaints or lawsuits pop up. I also would strongly caution against paying exorbitant fees to use a credit restoration company, after all, you already have bills you haven’t paid, why accumulate more debt.

I think the main reason people seek out credit restoration companies is that the average individual feels that credit repair is beyond their skill set and this is usually simply not the case.  A credit restoration case worker is simply more familiar with how the system works, but this doesn’t require a special skill set, it just requires tenacity. Most people can set up their own credit restoration plan, put it into motion and achieve the same results they would using a professional company. A lot of people go with these credit restoration businesses, because they simply don’t want to do the work, or feel that they don’t have time to do the work involved in dealing with creditors. It involves a lot of time on the phone, letter writing, and more time on the phone.   

In a nut shell, what you need to do to start improving your credit is simply pay your bills on time. Every time you pay a bill late, even a day late, this is a negative mark on your credit. You should also begin paying down the debt you owe, as a big part of your FICO score is determined by how much credit you have available vs. how much credit you are using. For example, if you have a credit card with a $5,000 limit and you have it maxed out, this is not as good as having a $5,000 limit and you have only charged $400. You also do not want to cancel any of your existing credit cards because this can affect both the equation mentioned previously, but also part of your FICO score is based on the amount of time you’ve had credit. So, canceling a credit card would reduce your amount of credit available and the amount of time you’ve had this credit available, so this may negatively impact your credit.

Another thing to consider since the length of your credit history plays a part in your overall score is to occasionally rotate your credit card use. Every now and then, buy something with an older credit card and immediately pay it off. This will effectively “age” your credit and boost your credit.

If you get to the point where you are so over your head that you can no longer pay your debts then you may have to consider bankruptcy as an option. Due to the current economic climate, this no longer has the stigma that it once did. This will effectively remain on your credit report for up to 10 year, but within 2 years you could qualify for a new home loan providing that you meet all the other criteria such as work history and current good credit use.

So, credit restoration is possible, but consumers need to realize that there is no quick fix. With a plan and deliberate action, you can begin to slowly raise your credit score. The process takes time, but you should see a small yearly increase in your FICO score for each year that you show a responsible use of credit. Although bankruptcy can be an emotionally and ethically hard decision to make, for some people it will prove to be the right decision. With upside down mortgages and no employment, even a credit restoration company can’t work miracles.

Since the economy is so bad, more and more people are facing the prospect of a bad credit rating and wondering how this will affect them in the future. There’s no doubt that having bad credit will be a liability. It affects whether you can get loans in the future, what interest rates you are charged, and in some instances having bad credit may make you ineligible for certain jobs. But know that with the current economic downturn; a lot of creditors are in the same boat. Millions of homes are in foreclosure with more on the horizon, many people are out of work and bankruptcy filings are skyrocketing.

Since everyone’s credit situation is different, this article will need to make some simple assumptions about your current credit condition. This article will address credit report repair for people who have bad credit or would like to improve their FICO score.

When starting out on your credit report repair, the first thing you want to do is get copies of your credit reports from the three major credit reporting agencies: TransUnion, Experian, and Equifax. You are allowed one free report from each one every year, so there is no need to pay for this service. Anything you pay for from these agencies is an upgrade promoted to prevent identity theft, but this is not necessary. Carefully look over the credit report to make sure that everything on each of the reports is correct. If you see anything that is reported incorrectly, you need to write that company to have the erroneous information removed. You should include supporting documents and keep records of all your correspondences. Legally, these companies are required to remove incorrect or false information, so the law is on your side if you can prove your claims and they fail to act.

When you get your 3 free credit reports, you may also want to get a copy of your FICO scores. Unfortunately you will need to pay a small fee for this but it gives you a good overall view of your credit health. Your FICO numbers are the most used indicator of credit worthiness; it’s used by banks and lenders as a tool to see whether a customer is a good credit risk. Those with the highest FICO scores are not only the most likely to get loans, but they also get lower interest rates.

Each of the three credit reporting agencies listed above have FICO scores associated with your account, so essentially you have three separate FICO numbers. Equifax uses the name Beacon Score, Experian uses the name Experian/Fair Isaac Risk Model and TransUnion calls there FICO score Empirica. When you’re just starting out with your credit report repair you’ll probably want to get all three scores, because they may be different. Because each of the 3 different credit reporting agencies will have a slightly different credit report, you may have a small spread difference in your FICO numbers. In the future you will only need to get one FICO score, but initially it’s good to know where you stand because a lot of people are completely in the dark about how credit works and what their credit score signifies.

You now should have a good overview of your credit health, now that we have a starting point, you can start a plan of attack to begin improving your credit. Once you’ve verified that everything on the credit report is correct and corrected any mistakes, now comes the easy part. Unfortunately easy does not mean fast or quick. Everything involved with credit report repair is a slow process. But, the soon you start, the sooner you can have good credit. There are no short cuts.

To start the process you need to understand exactly what determines your FICO score. You score is determined by 5 main categories that myFICO shows as follows:

This means that the categories of “payment history” and “amounts owed” are the best place for you to start since these account for 65% of your overall score. This doesn’t mean that you shouldn’t pay attention to the other categories but rather that these are the two main areas that have the worst effect on most people’s credit.

If you are late paying your bills this will be reflected on your credit score. Banks and lenders don’t want to loan money to people who can’t pay their debts on time, it puts you in a high risk category. Likewise, if you owe a lot of money in debt, bank will consider you overextended and also put you in a high risk category. Also falling under the “amount owed” category is the total amount of credit you have available to you which is weighed against the amount of credit you are actually using. As an example, if you have a credit card with a $10,000 limit and you have it totally maxed out, this is bad. If you have the same $10,000 credit card with only $300 charged on it, this is good.

So, the absolute best place to start with your credit report repair work is in these two categories. From now on, pay every bill on time and work on reducing your debt load. This is well over half (65%) of your credit score, so you can achieve excellent results by just doing these two things alone. One thing you do need to keep in mind is that credit report repair work will take time. Don’t expect to pull up your credit reports in another 3 months and boom, your credit score has shot up 200 points, it simply doesn’t work like that. It’s more of a glacial pace, slow steady improvement, so don’t get discouraged, keep at it.