Credit scores, also referred to as FICO scores, can be rightly termed as a way to determine the credibility of an individual for assuming debt. These FICO scores are calculated using software developed by Fair Isaac Corp and are entirely dependent on the past credit history of the individual. All the three major credit-reporting agencies, namely Equifax, Experian and TransUnion calculate these scores and rate the credit risk potential of every individual.
Building a good credit history is mandatory so as to lead a hassle free life. Usually, financial organizations refrain from entertaining borrowers with bad or low credit scores or provide loans at higher interest rates. Insurance companies charge higher premiums for such persons. Persons with low FICO scores need to even pay higher deposits for getting a phone or utilize other services.
In case anybody has bad credit scores, it is very much required to take adequate control measures so as to improve them. Below mentioned are some important tips for improving credit scores.
1.Check your credit reports: Credit reports or credit scores are determined based on certain factors that include the past payment history of the individual, the amount one owes as credit and the type of credit one has got or applied for. Also, a person is eligible for getting one free report each year from each of the three credit-reporting agencies. One should always remember to check the credit reports carefully. Any errors or mismatched information in the report must be duly notified to the respective credit-reporting agency along with proper evidence. Consider this fact. One single late payment if reported to the credit-reporting agency, can affect the credit scores by almost 100 points, particularly for those individuals with higher credit scores.
2.Next important tip is to ensure that all the bills are paid on time. This includes aspects such as library fines or parking tickets.
3.Bankruptcies also affect credit scores. In case any individual is facing such a situation, the best strategy is to have consultation with a financial management service or a credit counseling service and find ways to avoid bankruptcy. Any such consultation doesn’t affect the credit scores. An important fact is that bankruptcies are displayed on the credit history of a person for almost 10 years.
4.Do not apply for more credit cards or loans. Many people do not know the fact one single credit inquiry can reduce the FICO scores by 5 points. In case one wants to compare quotations from different companies before obtaining a mortgage loan, best strategy is to go for shopping within a specified time limit where all the credit inquiries are considered as a single unit. Information about this can be obtained by calling any of the credit reporting agencies.
5.Never try to cancel any existing credit source. Older credit accounts ensure long credit history of an individual.
6.Another strategy to improve credit scores is to try and use credit cards as sparingly as possible. Always limit the spending potential up to 30% of the available credit limit. This is because excessive spending is considered as a negative factor.
FICO scores do have a significant impact on the overall social life of an individual, right from obtaining a mortgage loan to get a home on rent. Recently, having good credit scores is becoming a prerequisite so as to obtain a good or high paid job. By avoiding the importance of FICO scores and failing to implement appropriate credit control measures, one might end up losing thousands of dollar every year and also many more opportunities in life.