Increase Your FICO Score in 7 Easy Steps

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Increasing a FICO score in seven easy steps includes obtaining a copy of the credit report, verifying all of the balances and limits, negotiating with creditors and keeping old accounts open. Raise a FICO score effectively with advice from a credit repair consultant in this free video on personal finance.

Part of the Video Series: Credit Ratings & Bad Credit
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Video Transcript

My name is Stetson Lowe, and in this clip we're going to talk about how to improve your FICO score in seven easy steps. The first step is to obtain a copy of your credit report, and go by, go down the list on your credit report line by line, and review each line item. The ones you really want to key in on, and focus on are the negative items. Settled for less than agreed, late payments, collections, charge offs, things like that. And review those for accuracy. Many times you'll find duplicate items being reported twice. Charge offs that were than sent to a collection agency. Under the Fair Credit Reporting Act, that account can only be reported positively or negatively one time on the credit report. So if your original creditor is listing it, as well as a subsequent collection agency, that's something that you can have removed, and only be reported one time. Another thing to look for are things that might have been included in a bankruptcy, which aren't listed with a zero balance and a zero payment. That still shows, and increases your debt to high credit limits. Next you're going to want to verify your balances and limits are accurate on each trade line. So for instance, if you have a credit card with a ten thousand dollar limit, and a two thousand dollar balance, you're going to want to verify each on of those line items, and make sure those are reported accurately. Sometimes, whether it's malicious or not, creditors report and improper limit, which makes your limit to high balance ratio off, and therefore and skews to the negative your credit score. So go through and make sure your limits and balances are properly being reported on each trade line. The next step in the seven steps to increase your FICO score, would be to negotiate with any creditors that are reporting bad marks on your credit report, to have them removed. If you've had a credit account with a company for many, many years, they will often times talk to you over the phone and sometimes agree to remove, if, the bad mark or late payment if it only happened one time. And, so you can take advantage of your relationship with that creditor, and the fact that they want to keep you as a client. Leverage that, to have them remove a bad mark from your credit report. If you have a really bad derogatory, such as a long, overdue bill that's been sent to collections, the best thing to do is to call them, and if you're unsure, I have clients all the time that are unsure if the, if the debt is even theirs. They're not sure who the original debtor was, and why it's being reported on their credit report. So you never want to say I'm calling about my debt. That's admitting that it is your debt, and could restart the statute of limitations, and enable them to sue you for that debt. You want to call in and say that I'm calling about account number such and such, and give them the account number, and try to get to the bottom of it. If you do realize, or find out that it is your debt, and you want to take care of it, never authorize payment on that debt, without first obtaining in writing that they will remove it from your credit report. They do have the power to do that, and they will often times tell you they don't. But they do. And so, always, anytime you're going to make a payment on an old derogatory debt, make sure you have in writing, a letter that states that they will remove it from your credit report once it's paid in full. Once you have that in writing from an authorized representative, go ahead and make the payment. Write on the back, in the place where they will endorse it, by endorsing this check, you're hereby authorizing it to be removed from my credit report. And than reference the letter. And you can actually write than on the back of the check, for further proof that they agreed to it in writing, and you'll get that duplicate check back, sent back to your bank, so you'll be able to see that, that is a written contract that they signed when they go to endorse it and cash the check. The next step to increase your, your FICO score, would be to make sure your credit to limit ratios are in check. And when I say in check, the magic number seems to be below thirty percent. So again, if we use the ten thousand dollar limit on a credit card, you'd want to make sure that your balances are below thirty percent of that, or three thousand dollars. It's a very simple formula, that creditors want to see that you're not over extended, and you're not maxing out your cards, but they also do want to see use of the credit cards. The best credit cards I see from my clients, are those who do use their credit card, but keep it well under the thirty percent of the limit ratio. The next step in improving your FICO score is to not close any old accounts. Accounts with a long standing history, of ten years or five years, really can boost your credit score. A lot of people play the game where they transfer balances from credit card to credit card at introductory low APRs. And, then they'll close the old accounts. And then they come to me, and they can't figure out why their credit scores are so low, when they have no bad credit or derogatory accounts. The reason being, is they don't have long standing trade lines. So don't close your old accounts. Keep the, keep the JC Pennys card open, or, or the card that you've had for years and years, your old American Express. Even if you transfer balances, or take advantage of an introductory offer, don't close the old account. Keep that open, and in fact, if you do get offers for a zero percent transfer, or a 2.99, you can usually call your creditor that you already have the trade line with, and ask them to match that offer, to give you a similar offer, and often times they will do that to not loose you as a customer and to keep you, to be competitive with the other offers that are out there. The next step to increase your FICO score, is to not go out and open up new trade lines. A magic number that I've seen is around seven trade lines, including mortgages, car loans, credit cards and student loans. Seven to ten trade lines. Those of you that go out and open up new trade lines all the time notice that during the first year of that trade line, it does impact your credit score in a negative way. So you're going to want to avoid opening new trade lines, and especially when in the mortgage process, or applying for credit, avoid spending on those credit cards as much as possible. Avoid it all together if you can, because the spending on the new, credit cards, or opening new credit cards, will adversely affect your credit score. And just a few points can really affect the interest rate, or approvability of a loan. The next step in improving your FICO score would be, to make sure you have at least three revolving trade lines, and one installment loan. A revolving trade line is an open ended credit agreement, such as a credit card, or a home equity line of credit, that you can borrow and pay back, borrow and pay back on an ongoing basis. And installment loan is a closed end contract, typically an auto loan would be for 48 or 60 months. Where you have an amortized payment that at the end of the term, that credit or trade line is then closed, and the loan is closed. So, they want to see that you have a variety of different credit trade lines. Three revolving and one installment seems to be a good mix. Again, don't exceed the seven to ten total trade lines, to have the very best impact on your FICO score. If you have bad credit and cannot get approved for a traditional credit card, or revolving line of credit, they do offer bank secured cards, where you may have to upfront the two hundred or five hundred dollars to the bank, then they will issue you a Visa or Mastercard, with a five hundred or two hundred dollar limit. So in essence, you've paid them upfront, and than you can use that for spending. It may not make sense, where you could just use that two or five hundred dollars, but it does have a positive impact on your credit score, which will than increase your FICO score, and allow you to get qualified for the more traditional credit cards later on down the road.


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