How to Make Your FICO Score Work for You

Everyone has a credit report, whether good or bad -- it is a mirror reflection of your financial life. Your credit report can make or break you. How well you manage your money and if you pay your bills on time, determines whether you are "credit worthy" enough for lenders to loan you money. A lender can determine if you are a worthy candidate or not, by examining your FICO score.

A FICO score is a three digit number that is calculated by information found on your credit report. This includes your payment history on credit accounts, how timely you have paid your bills in the past and how much debt you are carrying. Included in the score is your revolving credit accounts, balance owing and the age of the accounts. Your FICO also examines new credit accounts and what types of credit you are using.

FICO scores range anywhere from 300 to 850. The higher your score, the better. If your FICO score is extremely low, between 300 and 500, chances are, you will be unable to get credit for a new car or home. If you are in the low to medium range which is between 501 to 619 -- you are still somewhat high risk, especially if you are still in the 500 range. If you manage to find a lender or credit card company who will loan to you with a low credit score, you may pay a high interest rate and your account may have to be secured. It is not advised that you take out credit if your score is in this range. You may be required to pay upfront for a security deposit, annual fee and carry extremely high interest rates as long as the account is active. A low score takes the debt longer to pay off and you are at a greater risk of defaulting or not being able to pay the loan back because of the higher payment.

If you are above 619 to but not above 675, your credit is considered good but it isn't the best either. You shouldn't have a problem getting a credit card or loan but you wont acquire the best interest rate. These numbers allow you to establish your credit and work at successfully raising your score over time.

If your FICO score is 700 or above -- you are classified as having very good to excellent credit. A high score means you have had an open account for over 5 years and spent below all of your maximum balances or paid them off in full before the next billing cycle. A high score signifies that you have been paying your bills on time and have had no delinquencies, bankruptcies or judgments.

Even if you are having credit problems at the moment, that does not mean you can not improve your FICO score. If your score is only 600 right now, you can easily bring the score up above 700 in just a few short months.

First, locate the problem that is dragging your FICO score down. Do you have a credit card balance that is too high? If so, try hard to pay down the balance as quickly as possible. Making double payments or adding an additional 25 percent to each payment, can help you pay balances off faster. Typically, it takes 30 days for balances and payments to show up on your credit report.

Make sure you pay everything on time, including your monthly utility bills. Many utility companies are now reporting late payments to the three credit reporting agencies -- Experian, TransUnion and Equifax. If you have repeated late payments, this will adversely affect your credit rating and lower your score.

As terrible as it sounds, a credit report can basically tell others your sense of character and responsibility without them ever meeting you. Many employers are using credit reports and FICO scores to determine if a person is suitable enough to be hired at their company.

Insurance agencies are also now using credit reports and FICO scores to determine how much they will charge insurance premiums to their customers. If you have poor credit, chances are your premiums will be high or you may not be able to obtain insurance at all.

Keeping your FICO score high will make your financial life easier and prove you to be a trustworthy and responsible person.

Try to implement these simple steps into your financial lifestyle to improve your score and make it work for you by bringing financial freedom and peace of mind:

1. Pay everything on time- Do not utilize grace periods -- this will cause you to fall further behind each month. If you forgot to pay your credit card last month, make sure you get caught up as soon as possible. Try to pay ahead for the next month.

2. Pay down on your credit balances- Even as much as an extra $25.00 added on to your payment each month can help increase your credit worthiness and help pay off your balance sooner.

3. Do not close out unused credit cards- Keep the credit line open -- this will help to slowly raise your FICO score.

4. Do not open up more credit cards than what you need- By doing this, it can lead to bringing your overall credit and score down.

5. Do not allow unpaid bills to go to collection agencies- This is the one of the worst things you can do to hurt your FICO score and will drop points very quickly.

6. Pay your mortgage and vehicle loan on time every month- Your largest line of credit which is generally a home loan or vehicle loan is the biggest asset you have on your report, so make it work for you. Always make sure these are a priority and paid on time. If you are delinquent on your mortgage payment, your score can drop by several points each month! This is one of the worst things you can do to sabotage your score.

By following these tips it shouldn't take long to improve your overall FICO score. A good motto to follow for your FICO is -- If it needs improvement, work on bringing it up. If its beyond repair, its never to late to make better financial choices and fix the number. If it's good, work even harder at keeping it that way!