How to Improve Your Fico Score

Do you have a poor Fico score? If it's under 580, then you need to improve it.

What is a Fico score? Simply put, Fico scores are scores used by lenders to decide your credit risk. Whether you realize it or not, you have three Fico scores----a score for each of the three credit bureaus, which are Experian, TransUnion, and Equifax. These scores determine how credit companies view you, according to your either good or bad credit history.

How are Fico scores determined? Fico scores are based on data from each credit bureau regarding your financial history. Each credit company has an individual file on you. With each change in your credit history, your credit scores also change. Because the information in your credit reports changes quickly, it's vital that you check with all three of your Fico scores, as well as credit reports on a regular basis, which is at least annually. Unfortunately, even if you are responsible and have do good credit, we live in an age where the crime of identity theft is increasing. If you're a victim of identity theft, you need to immediately report any fraud on your credit report.

How does your Fico score change? There are several reasons why your score fluctuates. For example, when you fail to miss a payment or get a new automobile, take out a mortgage, or go bankrupt, your score lowers. It's also affected when you get a new credit card or get instant credit at a department store. Or, on a positive note, it changes for the better (goes up) when you pay your bills on time month, after month.

A score of 750 or more is considered excellent, while a Fico score of 480 or lower is below satisfactory. (680-750 is Very good; 620-680 is good, 580-680, above satisfactory, and 550-580 is satisfactory.)

What if you have just a satisfactory fico score, or even worse, have a below satisfactory score as well as 480? What can do you do to improve it?

*First, start paying all your bills on time. And, do not carry over balances on your credit cards---But if you do carry them over, be sure it's not more than 30% of the available credit limit.

* Pay off all debts---Rather than moving your debts around, just pay down your revolving credit. The truth is that you can owe the same amount, but just by having less open accounts, you can lower your Fico score.

Should you cancel all your credit cards?

Not really. You can still have credit cards, but you just have to learn to manage them more responsibly. Ironically, having credit cards actually raises your score as someone with no credit cards at all is considered a bad risk for loaning money.

Unfortunately, straightening out your credit will not make your bad credit history disappear immediately. It takes at least seven years for your record to be entirely clear. However, during that time you can learn to be more responsible, as well as increase your Fico score.