Quick Tips to Raise your Credit Score
Millions of Americans have FICO scores falling close to the highest range. A report on Wall Street Journal states that approximately 32.8 million Americans have FICO scores between 700-749, roughly 36.4 million have scores between 750-799 and another 38.6 million (approx) have scores between 800-850. So, it can be said that roughly 1 percent of them or 2 million individuals have a perfect FICO score of 850.
A high FICO score can pay really well. The prime borrowers have a FICO score of 720 or more and the interest they pay is low, but not the lowest. According to market research company, Informa Research Services, a borrower with FICO score between 700-759 might get a home loan at 3.983 percent interest rate on $400,000 for 30 years. On the other hand, home buyers with FICO scores between 760-850 might get an interest rate of 3.821 percent under the similar circumstances. On comparing both scenarios, the later will end up saving $6,194 in the interest value in the first 19 years. The savings will be greater in case of larger mortgages.
What Impacts the FICO Score?
FICO score is calculated on the basis of these five factors:
- Payment history – Accounts for 35 percent of the score
- Overall payment an individual owns – Accounts for 30 percent of the score
- Extent of credit history – Accounts for 15 percent of the score
- Ability to manage different credit types – Accounts for 10 percent of the score
- Application for any other credit in the recent time – Accounts for 10 percent of the credit score
Ways to Boost the FICO Score
Individuals can take certain measures to improve their FICO scores. While some might pay off within a couple of weeks, others might take several months to show results.
- The fastest way to improve FICO score is to spend less on credit card and pay off the balance on the card. The method might increase the borrower’s score in a month’s time.
- To achieve a FICO score of more than 800, aim for a “debt-to-limit ratio” of less than 10 percent. For example, if the total credit limit on all the cards is $1,00,000, don’t use more than $10,000 at once.
- Try not to use more than two credit cards because too many cards with balances have negative impact on the FICO score. When using a credit card, choose the one that has highest spending limit.
- Always try to make the credit card payment before the statement closing date or soon after using the card.
- Each credit card must be used at least once a year because there are chances that card issuer might shut down the unused card. This can hurt the FICO score.
Building Positive Credit History
It takes time to build a credit history and demonstrate the ability to manage different types of debts. For those planning a major purchase such as a house or car, it is vital that you engage yourself in boosting the FICO score in advance. Responsible debt management brings with it the advantage of a high FICO score that will be beneficial in the long run.