Nothing is worse than taking the time to apply for a new loan, waiting days to hear back, and then receiving that denial phone call, or rejection letter in the mail. It can leave you feeling hopeless. If you’ve ever tried to get approved for a loan, you know the importance of your FICO® score. FICO® originally was an acronym for Fair, Isaac, and Company out of San Jose, California, and has become the standard for evaluating the potential risk of consumer credit. The lower the FICO® score, the harder it is to qualify for a loan and the higher the rate of interest. Fortunately, there are many things you can do to improve your credit score.
Pay Your Bills on Time
You may think that falling a month or two behind on some of your regular bills is no big deal, but the truth is it may be hurting your ability to qualify for a loan. Do everything you can to get current on all of your revolving debt and make sure you continue to pay your bills on time. If you tend to be forgetful, set them up on auto pay.
Pay Down Your Credit Card Balances
If your credit cards are getting close to being maxed out, you’re probably hurting your credit score. Generally, it’s a good idea to stay below 30 percent of your available credit. In other words, if you have a $10,000 credit limit and are carrying a balance of $5,000, you are using 50%, which is too high. Do what you can to pay down your balance.
Don’t Pay off Cards with a Small Balance
Do you have a bunch of credit cards with a small balance? You may be tempted to pay them off, but a zero balance is not good for your credit score. Keep the balances on those cards low and make steady payments, but don’t pay them off completely.
Keep Credit Requests to a Minimum
Every time you apply for a loan, it can drop your credit score a bit, so shop wisely and take action quickly. Normally most lenders ignore credit inquiries made in the past 30 days, but if it finds some credit applications that are more than 30 days, it will take those into account and think you are trying hard to get a loan.
If for some reason you are denied credit or are told that you don’t qualify for the lender’s best rate, the lender, according to the law, must show you the credit score it used to make its decision. The good news is that you are entitled to review your credit report once a year for no charge which makes it easy to keep an eye on your credit score and do whatever is necessary to improve it. For more information go to freecreditreport.com.
Note: Opinions expressed are solely my own and do not express the views of my employer
FICO® is a registered trademark of Fair Isaac Corporation.