A credit report is like a history book of how well you manage your tradelines with different creditors. A tri-merge report shows data from three most common credit reporting agencies TransUnion, Experian, and Equifax.
It’s hard to know exactly what factors those companies use or their formula to compute your FICO score. Maintaining a good score, however, is important when you need to apply for new credit.
Congratulations to those who have been able to maintain their good credit history. If your score is not “that great”, then here are some simple things to improve your credit.
1. Check Your Credit Report – It’s advisable that you check your at least anually. You can get a free report from each of those three credit bureaus every 12 months from http://www.annualcreditreport.com. If you find any errors on your report, dispute them with the credit bureau and report agency.
If you plan have a major purchase that would require your credit, you may want to check your credit three months before the purchase. That will give you time to dispute any errors and correct your score before the purchase.
2. Number of Tradelines – A tradeline generally is a credit account with your creditor. It can be a credit card, a mortgage, a car installment, or something else.
Current mortgage lenders guidelines often require minimum of two active 24 month + two active 12 month tradelines. The longer history your tradeline has the better.
Personally, I find it’s much more manageable to have no more that four credit cards. If you also have other active tradelines, you may also want to reduce number of credit cards to two. If there are any excessive tradelines, especially, those which have been inactive for more than six months, it may be a good idea to close those accounts.
3. Pay Your Bills on Time – to get better score, it’s essential that you pay your bills ontime. Payment reminder is a good way to stay on top of your bill.
Nowadays, you can easily setup reminders using tools such as Microsoft Outlook, web email, online calendars, or smart phones.
If you have missed a payment for some reasons, contact your credit immediately. Explain to them the reasons why you have missed the payment. If the explanation is reasonable and you are able to pay the balance, your creditor is more likely to waive any late fee and void reporting to credit bureau.
4. Outstanding Balance vs. Total Credit – In a tradeline like a credit card, outstanding balance is the current balance on the account and total credit is the maximum your creditor has approved for you.
In general, you should try to avoid NOT to overcharge an account. For example, your available credit is $1,000 and your current balance is $350. It’s an overcharge if you purchase an $700 item and charge it to the same account. Very often the vendor and credit will approve the transaction. However, that overcharge would damage your FICO score (my guess-timate is around 25-40 points).
It’s great if you can pay your balance down every month. In case you need to carry balances to next month, try to manage those amounts among available tradelines. The higher the ratio of outstanding balance / total credit, the more negative it affects your score. If your have two credit cards, for instance, with $1,000 and $2,000 total credit. Your total outstanding balances for both cards are $900. You would have better score if you keep $300 on your first card and $600 on your second card.
Following those 4 simple things would help you improving your FICO score. There are, of course, other available tips to improve your credit score especially when you are looking to buy a house. There will be other important factors that mortgage lender will look for such as debt to income ratio, assets for down payment, and collateral.
