FICO scores are important to anybody who is seeking credit. An adverse credit history, as a result of missed or late payments, will mean higher borrowing costs which can place a real strain on family finances. Fortunately, there are a number of things that can be done to improve a credit score. Whilst the effect won't be immediate, a more stable payment history will result in a continual improvement.
Check Credit Reports for Errors
The Consumer Data Industry Association estimates that as many as three per cent of credit reports contain errors. These are just as likely to affect FICO scores as missed or late payments. The Fair Credit Reporting Act 1970 requires that consumers contact credit reference agencies directly to get credit report errors rectified. Any 'disputes' should be supported by appropriate documentation in order to expedite the process and improve personal credit scores as quickly as possible.
Improve FICO Scores by Paying Down Credit Card Balances
Craig Watts, consumer affairs manager for Fair Isaac Corp, stated that: "After repairing errors, the fastest route to a better score is paying down balances on credit cards." Whilst it doesn't instantly boost a credit score, reducing credit card balances over a couple of months can help. Closing obsolete accounts without clearing a balance can worsen FICO scores because it affects the utilization ratio. This is the total amount of debt divided by the amount of credit available.
Avoid Further Missed and Late Payments
John Ventura, a consumer law attorney and author of "The Credit Repair Kit" said: "Even if you've paid your bills late in the past, you can improve your credit score by paying every bill on time from now on." Whilst chapter 7 bankruptcy affects FICO scores for up to 10 years, it remains possible to improve this by paying punctually. An adverse credit history, caused by filing for bankruptcy, short selling or mortgage foreclosure, can be improved within a couple of years.
Transfer Credit Card Balances to Help FICO Scores
Credit scores can be improved by performing a credit card balance transfer from a card that is close to being maxed out to one that isn't. David Chung, managing director for Maryland-based CreditXpert Inc. advised consumers to: "Try to get the usage on all of them [credit cards] at 20 to 30 per cent instead of a bunch at zero and one at 80 per cent." This also improves utilization ratios.
Just as a FICO score is affected by missed and late payments, it can be improved by paying punctually. Pay close attention to credit utilization ratios as keeping obsolete accounts open and performing credit card balance transfer to under-utilized cards will help improve a credit score. Always check credit reports for errors and be sure to get these corrected.
Sources
Curry, Pat. (August 3, 2007). "Tips for boosting your credit score." The New York Daily News.
Tedeschi, Bob (2009, April). "Faulting Credit Firms on Fixing Errors." The New York Times.
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