Your credit scores -- namely your FICO scores from the Fair Isaac Corporation -- are often the biggest factor lenders consider when extending you credit. Although manual underwriters may take a look at your history, many cards -- especially "prime" cards -- do have a FICO score cut-off limit. Let's face it, you're probably not going to get approved for an American Express Blue Rewards Card with FICO scores in the low to mid 500s. Below are some of the best ways to greatly improve your FICO scores and increase your chances of receiving credit.
- Improve your utilization (how much credit you have available compared to how much credit you are currently using) by paying down current revolving debt, adding new cards, or asking for a credit limit increase on your current cards. Utilization counts for 30% of your FICO scores.
- Allow any new accounts to age and any established accounts to age more. As they get older, your score will go up. The length of your credit history and the average age of your credit lines count for 15% of your FICO scores.
- Add a few new credit lines if you do not have many or have not added any within the past two or three years. New credit lines count for 10% of your FICO scores.
- Pay all of your current debt on time and don't rack up any late payments. Your payment history counts for 35% of your FICO scores.
- Apply for various types of credit, if you have not already. The more varied your accounts are between FICO's four categories -- revolving credit lines, installment credit lines, open credit lines, and mortgage credit lines -- the higher your score will be. This does not mean you need two or three mortgages, but apply for an installment credit line or two if you don't have any reporting. The types of credit used count for 10% of your FICO scores.
- Dispute any inaccuracies. This will obviously raise your score since any payments not reporting or false late payments reporting -- especially newer ones -- will significantly reduce your score. Credit reporting agencies have a 50% or higher inaccuracy rate, so don't just assume that your report is correct.
Your FICO score can range from 300-850, with 720-725 being the median FICO score for Americans. Remember, each of your credit reports may be reporting differently and can cause your FICO score from each credit reporting agency to differ by 100 points or more. For this reason, you should check all three FICO scores -- one each for Equifax, Experian,&TransUnion -- and try to raise them all equally. Also keep in mind that Experian and TransUnion sell scores that are formulated using their own system and not by FICO. Lenders rarely look at these scores, so they are pretty useless to you. There are several FICO scoring models depending on your need for credit (i.e. car loan, mortgage), but to get the most accurate look at what most lenders see, purchase your scores directly from the Fair Isaac website.