Personal Finance Care

Credit scores have a great impact on your personal financial decisions. The three digit credit scores will evaluate your financial worthiness when you are looking for any new credit in the future. Based on your credit scores, future lenders will decide whether to offer you any new credit and if they do, what kind of interest rates should be charged on your new credit. Most lenders will review the FICO score when they approve any loans to the borrowers.

FICO scores range between 300 to 850. You will get the best deals when your FICO scores are at the highest and if your FICO scores are towards the down, you will have to work on improving your credit first before you apply for any loans. A score of 700 and above is often considered good.

Here are few tips that will help in understanding how your three digit FICO scores are calculated.

35% of your credit score is determined by your payment history. You should be regular in your bill payments so that you can have a better impact on your credit ratings.

30% of your credit score is determined by your balance to limit ratio. It is also known as utilization ratio. Try to use your credit as low as possible. If you are using excessive credit, it means that you have less cash to use. A utilization ratio of 30% or less is considered healthy.

Your credit ratings are also evaluated by your credit history. 10% of your FICO scores are based on your credit history. Your credit ratings will look better if you have old accounts with positive payment history
Variety of accounts: It is good to have variety of accounts on your credit report. Your credit scores will be lower if you are just using credit cards. In order to keep your credit in good standing, use variety of accounts like a car payment, home loan payment, student loan. This accounts for 10% of your FICO scores.

Your new credit accounts for 10% of your scores. Too many new accounts can represent greater risk.
There are two ways by which you can improve your FICO scores fast.

If you have any negative items showing on your credit report due to missed payments, negotiate with the lender to remove those items from your credit report after making a payment arrangement. Often original creditors will not do this, but if the account is sent to collections, then the debt collectors will be willing to remove those items from your file in exchange for full or even partial payment.

Get a limit raise or pay down your debt to 30% of limit or less. Your credit scores will go up in a very short time. If you have been having problems in paying your bills, this might not be an easy option. You should look for a merchandize credit card and purchase items from the issuing merchant. These credit cards will often have high limits. Make sure that you are regular in your payments so that you can keep your credit ratings in good standing.

Credit scores are calculated on the basis of information available on your credit report. The credit scores will keep changing over the period of time depending on how the status of your accounts with the credit grantors. Here are some ways to improve your credit scores.

Review your credit report regularly and see if there are any incorrect items reported on your credit copy that’s hurting your scores. Credit bureaus handle millions and millions of consumers’ reports. The errors are expected. Your best bet is to get rid of the incorrect information from your credit copy and your scores will rise dramatically.

Don’t close any credit card account if it is old and unused. Creditors review all information and they cannot draw too much conclusion from the accounts that are recently opened. There are many people who move debts from several credit cards to one card and then close the old accounts. Since creditors look at the debt-to-credit limit ratio this can have a bad affect on your credit score because you have the same amount of debt but less available credit.

Creditors review the average age of your credit accounts. So keeping the old accounts open definitely helps.

Reduce your credit card balance to 75% of your available credit.

Always pay your bills on time. Your creditors will report negatively on your credit copy if you are late in your payments.

Don’t let any creditor report an inquiry on your credit copy without authorized reasons. Anyone viewing your credit copy sees too many inquiries from different lenders, they will understand that you have been denied of credit too many times.

Don’t open too many credit card accounts just to increase your available credit.