Fair Isaac Corporation, or FICO, creates the most commonly used credit scores. If your FICO scores are low, you can increase them by repairing your credit history and practicing better credit management.
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Explaining FICO Scores
You actually have three FICO scores. one for each of the principal credit bureaus -- Experian, TransUnion and Equifax. Fair Isaac creates a unique score for each company based on the data that particular credit bureau collects. Although the three scores typically are similar, they may vary if the credit companies have different information about your credit history.
Find the Problems
To find out what's lowering your FICO scores, get a copy of your credit report from each major bureau. Then examine the reports for errors and misinformation. You can obtain free copies of the three reports once every year from AnnualCreditReport.com. Check especially for wrong information on late payments and incorrect loan amounts.
If you find mistakes in your credit reports, contact the credit bureaus to dispute the false data and request corrections. You can dispute errors and make your case online with all three bureaus.
Improve Your Record
Once you've corrected any errors in your reports, practice good credit habits from that time forward to shift the balance away from the black marks with more positive information. A prudent use of credit increases your scores over time.
- Catch up on any past-due accounts. When you become current on your bills, any history of delinquent accounts will have a smaller effect on your FICO scores.
- Pay bills on time. Late payments, and especially collections, have a significant negative impact on your FICO scores. Improving your on-time record will raise your scores.
- Help ensure timely payment by setting up reminders through your online banking. You also can establish automatic payments
for some bills.
Don't let your accounts go to collections, which stay on your credit report for seven years after you resolve them. Get credit counseling or contact your lenders to work out paying your bills.
Reduce Your Debts
Keeping your balances low is essential to having a top FICO score, according to FICO spokesman Jeffrey Scott, speaking to Bankrate.com. Reducing the amount of your total debt may be difficult, but it's still important.
- Stop using credit cards so that you don't get deeper in the hole.
- Make a list of all your debts, including the amounts owed and the interest rate.
- Commit to paying down your debts by putting extra money on the highest-interest debt each month -- typically a credit card. Once it's paid off, do the same to pay off the next-highest rate card.
Avoid shuffling debt from one card to another, and don't skip paying the minimum on all your other debts.
Manage Accounts Wisely
Be careful about opening or closing credit accounts. Opening several accounts quickly can lower your FICO scores, especially if you have a relatively short credit history. Opening accounts you don't need just to increase your available credit may actually lower your scores. Closing credit accounts you no longer use can also hurt your credit score. because scores consider the amount of available credit you have, relative to how much of it you actually use. The more available credit and the less used, the better.
Once you have debt under control, use credit to build a positive credit history. Keeping accounts open, using them and paying your bills on time increases FICO scores.
Closing an account with a history of late payments doesn't remove it from your credit history or improve your scores.