Ways to Improve Credit Score

If you’re looking for ways to improve credit score, it's a good idea to first learn about what a credit score is actually comprised of. Once you understand credit scoring basics it becomes much easier to know what you should do to raise your own score.

Credit experts like Nabil Captan understand the credit score scale.

In this interview, noted credit expert Nabil Captan explains what you need to know about understanding and improving your credit score.

For years, the three national credit bureaus, Experian, Equifax and TransUnion have been making millions of dollars selling their own versions of credit scores and never disclose to us that their scores are not used by most lenders. This I call a FAKO score:

• Plus Score from Experian
• Credit Expert Score from Experian
• Trans-Risk Score from True Credit/TransUnion
• Vantage score from all three:
  • Experian
  • Equifax
  • TransUnion

The Fair Isaac Corporation is the originator of credit scoring models that date back to the late 1950s. These models were created to help businesses make smarter decisions when assessing risk. The FICO® score remains the gold standard to date and is used by 90 percent of all banks. The FICO® score is a number that summarizes credit risk based on a snapshot of data at the national credit bureaus, Experian, Equifax and TransUnion, at a particular point in time. When lenders request your credit scores from all the three bureaus, they demand a FICO® score. However, when we purchase our own score we are most definitely get a FAKO score.

Few of us know what this very important score means, yet not knowing and understanding this score can cost us thousands of dollars and force us to settle for less than what we really want. The question today is much the same as it has been through the ages, “If I give this person a loan how likely is it that I will get paid back on time?” This is what they call in the business risk assessment. Let’s say you buy a car for $24,000. With high credit score you could get a five year loan for zero percent interest. With a middle level credit score you could pay 9 percent, costing you $10,800 in interest over the life of the loan. A poor credit score with a rate of 22 percent will more than double the cost of the car. That’s real money. That’s the impact a credit score can have.

• Pay your bills on time. Delinquent payments and collections can have a significant adverse impact on your FICO score. Therefore, make sure that you get your payments to your creditors on or before the due date on your statements.
• Keep revolving credit balances low. The key point here is that you need to be aware that the FICO scoring model uses a sliding scale and that the LOWER a person’s utilization rate (outstanding debt to your available line of credit) on any one account, the better!
• Get current and stay current if you have missed payments.
• Pay off debt rather than moving it around.
• Contact your creditors if you are having trouble making ends meet.
• Don't close unused credit cards as a short-term strategy to raise your score.
• Use each of your credit cards at least once every six months.
• Open new accounts responsibly. Don't open a number of new credit cards that you don't need, just to increase your available credit.
• Don't open many new accounts too rapidly if you have been managing credit for a short time.

Absolutely not! Crisis in your credit is not going to impact you forever. Credit crises can be overcome by changing payment patterns. The longer you pay your bills on time, the better your credit score. Improving our credit score is like getting in shape, it takes time and practice. While it is never too late to begin down the path to be in great shape, it is helpful to understand that the path may take you six months or a year, or longer. Negative credit will eventually disappear out of your credit file. The good credit you have worked hard to produce will continue to be in your file and build a good healthy credit score for a long time.

Today we have a lot of companies out there acting as credit repair companies claiming ways to improve credit score. You want to be careful because there is nothing they can do for you that, in general, you can’t do for yourself for free. You don’t need to pay someone to improve your credit or to dispute any negative item in your file for you.

Many of these companies promise to delete accurately reported information for a hefty fee. They might be able to delete them for a while, but they’ll always go back into your file. Under the Federal law, which is regulated by the Federal Trade Commission, it’s illegal for anyone to charge for a credit repair until the repair is completed. However, these credit repair companies start you with a $500 fee by calling it a "consultation fee" and not a credit repair service. You are better off paying down a credit card with this $500 and you’ll surely get a better result!

Closing accounts is not a smart thing to do. What you are actually doing is reducing your overall available credit and therefore increasing your utilization rate (outstanding debt to your available line of credit) that amounts to 30 percent of your score. Keep in mind that you must use your credit card at least once every six months to get any reward when your credit score is calculated. If you must close some of these accounts, close the one that you recently opened and that has the least credit history.

The first thing to do immediately after bankruptcy is to start re-establishing your credit. Get a secured credit card. Another way is to get a personal loan from your bank, keeping in mind it has to be guarantee by collateral or a car loan. Keep in mind though; it’s going to cost you. Bankruptcy stays in your file for 10 years; however, its impact lessens over time when you pay your bills on time. Your score will definitely improve over time.

Simply go to the FICO website and get your real FICO score that all lenders view when considering you for any type of credit. Why would you want to go anywhere else? It’s even cheaper than FAKO scores!

Nabil Captan is a nationally recognized credit scoring expert and an illustrious educator. Nabil’s dedication to financial literacy led him to create and produce The Credit DVD, Your Credit Score. He also created El DVD del Crédito and Su Calificación de Crédito; the first DVD and CD credit scoring program in Spanish. You can contact him directly at Ncaptan@creditdvd.com or go to his website for more information.

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