Most people are aware of the concept of a FICO score but many don’t know the calculation behind it. The formula in fact is top secret and is kept under strict control by the FICO folks (i.e. the Fair Issac Corporation). The formula specifics are not divulged because then people would have an unfair opportunity for credit score manipulation. Such a situation would then greatly weaken the value of the entire credit score scale.
Although certain algorithms which make up the calculating formula are secret, there are general measurements of credit in the formula which are not. Therefore shrewd consumers can take advantage of these credit categories and do certain things to improve their credit worthiness. Such actions can add up over time and have a marked improvement on their scores.
A Credit History is Needed
Credit history is a major component in calculating credit score and it’s always better to have a long history. This is because you’re considered more experienced and less of a risk when you’ve been dealing with credit for a longer period. Also, if you have a negative entry occasionally it’s not going to have a big impact over a lengthy credit record. This is also the reason why younger customers don’t get the same good rates that older customers do.
Timely Payments are Needed
If there are a lot of late payments a lengthy credit history is not going to be of much use. All creditors want timely payment all the time. If such commitment is not reflected in your credit file then your credit score will take a nose dive and your loan or credit line approval will have stricter conditions attached to it, like higher interest rates, heavier down payments, or a shorter repayment period.
A Good Credit-to-Debit Ratio is Needed
Although it’s not as profitable for creditors when you don’t use the credit that’s available to you, lenders take unused credit to be a good sign. For example if your credit card balance is $200.00 on your available limit of $6000.00, this is very good. This indicates to lending institutions that you’re managing your credit quite well. The demonstration of such ability will make your credit score soar.
These are the basics. Focus in on these and you’ll be in good credit shape. By doing these few things well and over time, you can raise your credit score to new heights.