FICO scores, created by the Fair Isaac Corporation, employ a proprietary formula to assess creditworthiness. This formula considers five key aspects when evaluating creditworthiness: payment history, the relationship between current balances and the credit limit, various types of credit utilized, the length of one’s credit history, and newly opened accounts. This formula is employed by the credit reporting agencies Equifax, Experian, and TransUnion. It’s important to note that the scores from these three credit bureaus can diverge slightly, resulting in variations in your overall credit score.
Lenders and credit card issuers use a FICO score to predict how likely you are to repay them. Often this score determines your interest rate. You can boost your credit score (FICO) in just a few months. FICO scores range from 300 to 850.
Good: 700 to 759
Fair: 650 to 699
Poor: 649 and below
How to boost your FICO score:
Begin by building your credit history
Like it or not, everyone needs a credit history. Once you are eighteen, apply for a credit card. Gasoline and department store cards are often the easiest to obtain. Different types of credit, such as auto loans, mortgages, and retail accounts, increase your FICO. Of course, it’s critical to pay bills on time.
Slowly increase your credit limits. Maxing out your credit limit lowers your score. If your credit limit is $10,000, you shouldn’t use more than one-third of your limit. Even if you pay your balance in full each month, you still don’t want to utilize the maximum limit.
Correct errors on your credit report
Everyone should be taking advantage of their free annual credit report. Review the report for errors and have them corrected. You can first start with the merchant who you believe is in error. If they aren’t helpful, contact the credit bureau. Credit bureaus typically have thirty days to investigate mistakes. They will remove the item if they concur that it’s an error. Most negative credit history should be removed from your credit report in seven years.