Credit Worthiness - How Can I Increase Fico Score?

By: Mike Singh

This is not a question you generally ask yourself - Are you credit worthy? What exactly does that mean? Learn how to answer to that question by using something called a FICO score.

FICO (Fair Isaac Corporation) is a number between 400 and 800 that ranks your 'credit worthiness' as per an algorithm devised by its originating company. On the scale 400 ranks as the worst and 800 is the best. There are other variations of the range but the basic idea of higher is better than lower holds true.

Are you wondering what the FICO algoirthm is ? So, are a lot of other people. These closely guarded secrets are for obvious reasons not revealed to the public. But, after all this time people have learned factors work towards improving or increasing your score and more importantly which ones harm or lower your score.
For example, late payments will lower your score. Some late payments such as the one towards your mortgage will hurt your score a lot more than a late credit card payment. Your total monthly debt is another factor. A factor of lesser importance is the total number of credit cards you have and the credit checks performed against your profile.

So, what is a good FICO score you ask? Scores above 720 are considered very good to excellent. Anything between 620-720 is average. If you fall in this range other factors such as income, stability of employment etc. will be considered before issuing you new credit or a loan. Scores below 580 are poor. You will have to start taking immediate steps towards rebuilding your credit score.

Ok, now that we know what range of scores are good you might be wondering who looks at these scores. Nearly all lenders do. Mortgage companies, credit card companies and other lenders use FICO score among other criteria while making a decision on giving you a loan and the interest rate for the same.

Since the 1990's the internet has changed the way lenders operate. Traditional lenders have had to cut costs to compete with lenders whose operations are purely online. In spite of all these changes, the FICO score is a very important criterion in decision making. It's often the first thing lenders look at while evaluating your application.

If your score is in the good to excellent range, keep up the good work. Request your scores every 3-6 months to make sure everything is in order. If your score is not where you would like it to be, there is hope. You should start by creating a plan for improving this score.

Firstly, clear up any discrepancies in your report. If there are items on your report which are inaccurate these could be hurting your score. After that, work towards paying off any debts owed. Make sure you don't miss any payments.
Try renegotiating the interest rates with your current lenders. If that fails look for lenders who will give you a lower interest rate on balance transfers. Slowly but surely you will get out of this consumer debt.

In summary, the good news is that with time as you make regular payments, pay off your debt and keep your spending habits in check, your credit score will gradually improve. So, take that first step now by making that plan.

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