We all have this idea in our heads that the way to get a good credit score is to make sure you pay your bills off on time, every time. Also, the more you pay on every payment the faster your bills will be paid off. These are both true in regards to personal finance, and should be regarded as the cornerstones of making sure your credit score stays in tip top shape. But what many people don’t know is that there are also a few other rules that govern your credit score that may seem a little off the wall. There are a few things you can do to improve your credit score that may seem like nonsense, but they really do work.
We all have this idea in our heads that the way to get a good credit score is to make sure you pay your bills off on time, every time. Also, the more you pay on every payment the faster your bills will be paid off. These are both true in regards to personal finance, and should be regarded as the cornerstones of making sure your credit score stays in tip top shape. But what many people don’t know is that there are also a few other rules that govern your credit score that may seem a little off the wall. There are a few things you can do to improve your credit score that may seem like nonsense, but they really do work.
You can actually have better credit by having a plethora of open loans. It may seem like a crazy idea to have a bunch of open accounts. One would think that this would have a negative affect on your credit score. But in actuality FICO gives a higher credit score to people who don’t put all their eggs in one basket. In other words, you’ll improve your credit score by having loans in different areas such as student loans, auto loans, and home loans. FICO also gives incentives to loans over other types of credit, so it can be more beneficial to purchase something by taking out a new loan rather than charging it.
Another crazy way to raise your credit score is to actually have more accounts open in general, especially credit cards and loans. When you have a lot of available credit to you that you are not using, it increases your credit score. So if you have a credit card with a seven hundred and fifty dollar limit, but you only have two hundred and fifty dollars charged to it, you would have five hundred dollars of available- and unused- credit. That gets factored into your score in a positive way. Therefore, if you have several accounts with high credit card limits but you only charge a fraction of that limit on each card, the higher your score will go up.
When you are trying to raise your credit card score people instinctively think that making a payment on existing debt is the way to go. While that may very well be true it isn’t the whole story. What people don’t know is that just because you make your payment on the due date that doesn’t mean that that is when the credit card company is going to report your debt to the credit reporting agencies. Your current balance of debt could reported to those agencies on any given day. The best way to avoid this trap is to make your monthly payment early or avoid using your credit card.
It may seem counterproductive not to cancel your credit cards when you can tell that you are starting to go under. But in fact that may just be an excellent decision on the path to saving your credit score. The length of your credit history can mean a lot in the calculation of your credit score. FICO wants to see that you are capable of taking on a long term commitment in its equation of your creditworthiness, which means when you sign up for a credit card you should be in it for the long haul.
Don’t shop around for the best loan. This may seem crazy, but you really have to pick and choose. On the one hand you can look around and try to find someplace that will give you a better deal than the last, but on the other hand the more you shop around then the worse your credit score will become which in turn will cause people to give you a worse deal on that loan you’ve been shopping around for. That’s because FICO will lower your score for repeated credit inquiries in a short period of time. The reason is to make sure that you’re not desperately searching for credit, so they bring your score down each time you try to apply for new credit. FICO will however count excessive credit requests as a single credit requests as long as all of those credit requests are completed within thirty days of each of each other. This means that if you feel the need to shop around for competitive loan pricing you may actually be weakening your chances of getting competitive loan pricing.
And these aren’t all the crazy things that FICO judges your scores on. Some of the off the wall judgments are never even fully disclosed. And many of these do make sense in theory, but in practice can actually have some honest and hard working people getting hit with bad credit they didn’t really earn. But luckily we do have this information which we can use to manipulate the credit scoring system to our advantage.
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