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Credit Score (FICO) basics - How to improve credit scores

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Your credit score is a 3 digit number that tells creditors about your creditworthiness - how you've managed credit and bills in the past. This score helps lenders/creditors judge whether you're a potential borrower. Credit scores range from 300 to 850. In this article on credit scores, check out the topics below:

What is a good credit score?

A good credit score is the one that's above 700. Anyone having credit scores in the 700s and above can get credit at better interest rates than someone whose credit score is lower.

However, anyone with low credit scores, that is, in the range of 500-600 is considered as high risk to creditors. Those having low credit scores are usually charged high rates of interest. Depending upon the market scenario, they may not be able to get credit/loans due to low credit scores.

What is FICO Score?

The FICO score is the most common credit score used by creditors/lenders in order to evaluate a borrower's creditworthiness and is developed by Fair Isaac Corporation. However, scores offered by each credit reporting agency (CRA) or credit bureau may vary because not all creditors report information to every CRA. Moreover, the credit scoring models used by the bureaus differ slightly from one another.

FICO scores offered by Equifax and TransUnion are known as Beacon and Empirica. Consumers can get these scores online from MyFICO. Experian, another CRA also offers FICO score but consumers can't access it from MyFICO. Experian FICO scores are available only to lenders. However, Experian continues to provide its own scores on their website - ""

Your FICO score/credit score is calculated using the information available on your credit report. Credit bureaus can only calculate your FICO score if you have at least 1 account open for 6 months or more. Also, there should be at least 1 undisputed account reported to the bureaus within the past 6 months.

What factors affect credit (FICO) scores?

In general, there are 5 factors which affect your credit score calculation. The factors with their weightage of importance are given below:

  1. Payment history (35%): This includes information on -
    • How you've paid credit cards, installment loans, mortgages, etc.
    • Adverse public records such as bankruptcy, liens and collections.
    • How many and how long past due accounts and adverse public records have been on the report.
    • Accounts paid as agreed.
  2. Amount you owe (30%): This provides details on -
    • Number and type of accounts you owe.
    • Ratio of balance to total credit limit (revolving accounts)
    • Ratio of balance to original loan amount (installment loans)
  3. Length of credit history (15%): This includes the time period since you've opened different types of accounts.
  4. New credit (10%): This provides details on-
    • The accounts you've recently opened.
    • Number of recent credit inquiries.
    • Time since recent credit inquiries.
    • Time since accounts opened recently.
    • How you've rebuild credit after past credit problems.
  5. Credit/loan types used (10%): This factor includes the different types of credit/loans you've opted for.

What are the ways to improve credit score?

You can improve your credit scores if you're able to keep factors like payment history, the amount owed, the length of your credit history, etc in good shape. This is what credit score repair is all about. Below are 6 ways to improve credit scores/FICO scores:

  1. Avoid missed/late payments: A 30-day late payment may reduce your credit score by 50 points. Your account may be sent to collection due to repeated late/missed payments.

    Even if an account is in collection, pay it off and have the status updated on your credit report as "Paid collection". Alternatively, you can negotiate a "Pay for delete" agreement under which your negative listing will be removed from the credit report once you settle or pay off the debt in full. You should consult a credit counselor if you're unable to pay what the creditor is asking for. The counselor will prepare a budget for you so that you can allocate money to each debt payment.

    However, the best way to avoid late payment is to set up automatic bill pay through your bank. But make sure that the funds are being processed and sent to your creditors each month by checking your bank statement regularly.

  2. Pay off debt instead of moving it around: Maintain low balances (around 10% of the available credit) on your credit cards and revolving accounts. It's better to pay off your debt rather than transfer it from account to another. When you owe the same amount of debt but have fewer accounts open, it lowers your score further.

    Moreover, if you transfer debt and close unused accounts within a short time, it reduces your available credit limit while your debt balance becomes higher and the length of your credit history is reduced. This affects your debt-to-credit utilization ratio, which should be kept around 30% of your credit limit.

    However, if you don't close accounts, you need to keep them active. This can be done by making a purchase or two using the cards every 6 months. This will improve your credit utilization ratio and help you in repairing your credit score.

  3. How to shop for new credit: Try to shop for new credit/loan over a short period of time. This is because creditors/lenders may pull your credit report and generate inquiries which affect your credit scores.

    Usually, for mortgage and auto loans, all inquiries or credit pulls made within a 30-day period are treated as single inquiry. So, the sooner you complete shopping for new credit, the better it is for your score. And make sure that you don't open new accounts just to have a better mix of credit, because if you fail to manage your credit, it will have a negative effect on your credit scores.

    Moreover, too many new accounts opened at once will raise your available credit limit compared to the credit used, and thus reduce your score. New accounts will also lower the average account age and reduce your score if you have not taken other types of credit.

  4. Authorized users: When you add an authorized user to your credit card account, make sure that the user doesn't overspend. As the principal card holder, you'll have to make the payments, and if you can't afford it, your credit score would get the hit along with the authorized user’s score.

  5. Avoid store cards and small debts: Getting too many store cards isn't a good idea if you're trying for credit score repair. These cards are open lines of credit, and too many of them are considered risky by credit bureaus, especially if these are not affiliated with a national creditor (such as MasterCard, VISA, etc).

  6. Change in names: Let's say your name is Adriana J. Smith and that's how it's reflected on your credit report. If you change your name and drop the "J" when you apply for credit, then the credit bureau will prepare a separate credit report for you even though your address may remain the same. So, you need to notify the creditor as well as credit bureau if there's any name change.

Can you get credit scores free of cost?

Free credit scores or free FICO scores aren't available though you can get a free copy of your credit report once a year from each of the bureaus (as per Fair Credit Reporting Act or FCRA). One place you can purchase your credit score online is at or you can call their toll-free number - 877-322-8228.

Having a good credit score is important when applying for new credit or loans. The best way to maintain good credit is to paying on time, pay more than the minimum, and monitor your credit report at regular intervals for any inaccurate details.


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