How to Improve Credit Rating?

There are a lot of ways to improve credit rating, but before making steps towards improvement, an individual must first know where he/she currently stands. The Fair and Accurate Credit Transactions Act of 2003 requires the top three credit reporting bureaus like TransUnion, Experian, and Equifax to release Credit Reports of a US resident for free once a year. These credit reports can be a very good gauge of the individual’s current credit standing.

A credit rating is a number that is used by financial establishment in analyzing a person’s creditworthiness. The FICO score is the most used and best-known credit score model in the United States of America. FICO or Fair Isaac Corporation, a publicly-listed company in the New York Stocks Exchange, came up with the credit rating to help financial companies in making decisions on whether to grant credit to an individual or not. It was established by Bill Fair and Earl Isaac in 1956.

To improve credit rating, a person can apply for a credit card. The credit card must report to the three credit reporting bureaus (TransUnion, Experian, and Equifax) so that a person’s credit rating can increase in all three agencies. Using different types of credit can also improve credit rating because it will show that an individual is responsible in handling different kinds of credit. Installment, revolving, consumer finance, and installment are the use types of credit that an individual can make use of.

Paying credit card bills and using these cards lightly can improve credit rating dramatically. Limiting credit card balances to below 10% of its credit limits can increase credit rating. A long Credit History can also improve credit rating. Using an old credit card can increase the rating but one must also pay off the balance when it becomes due so as not to decrease the credit rating.

There are mistakes that an individual must avoid to improve credit rating: asking for a lower credit limit, late payment of bills, consolidating accounts, and applying for new credit when one has numerous credits already. Asking the creditor to lower an individual’s credit limit will increase the credit utilization ratio, a number that is a ratio of current revolving debt to the credit limit, which can result to a lower credit rating. Late payments will affect payment history that will decrease credit rating. Consolidating accounts can also decrease a person’s credit standing. In general, it is best to have small balances in different accounts than have a big balance in just one account. Applying for new credit will result to more credit inquiries to the different credit rating bureaus, which will decrease an individual’s credit rating.

Historically, a FICO rating of 620 is the deciding number of whether an individual has a good credit standing or not. An individual with less than 620 FICO rating may have a hard time obtaining credit because creditors consider them as high risk so that it is best for that individual to exert all possible efforts to improve credit rating.

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