5 Strategic Financial Hacks To Improve Your FICO Credit Score: Experian, Equifax, And TransUnion
You want to rent an apartment? Get a car? Get a loan? Your FICO score will definitely be looked at.
In fact, FICO Scores are used in more than 90 percent of U.S. lending decisions, CNBC reported.
The three-digit number known as your credit score helps lenders determine what financial products are available to you, including credit cards and personal loans. There are three main credit bureaus — TransUnion, Experian and Equifax — that monitor your credit score.
Some 30 years ago, data analytics company Fair Isaac Corporation, more commonly known as FICO, came up with a way to help the credit bureaus interpret consumers’ credit reports and created an industry standard for scoring creditworthiness.
Five key factors are weighed in developing your FICO score, with each carrying a different weight. These include:
- On-time payment history (35 percent)
- Amounts owed (30 percent)
- Length of credit history (15 percent)
- New credit account applications (10 percent)
- Credit mix (10 percent), meaning the variety of credit products you have, including credit cards, installment loans, finance company accounts, mortgage loans.
Here are five strategic financial hacks to improve your FICO credit score that may help you reach that perfect 850.
1. Request higher credit limits
Actually having a higher credit limit will make your debt look smaller — if you don’t use the new credit, of course. You’ll get the benefit of lower credit use. “Think of it this way. If you owe $2,000 on your credit cards and have credit limits totaling $5,000, you are using 40 percent of your available credit. On the other hand, if you have $10,000 in credit limits, your utilization drops to just 20 percent even though you owe the same amount of money,” The Motley Fool reported.
2. Follow the 7-percent rule.
Keep your credit utilization below 7 percent. Credit utilization is how much available credit you have. “For example, if you have one credit card and it’s maxed out, then your credit utilization is high, and this will have a negative impact on your credit score,” Money Under 30 reported.
If you want perfect credit, the utilization should be below 7 percent, according to John Ulzheimer, a credit expert at Credit Sesame. So if you have a card with a $10,000 limit, you shouldn’t charge more than $700.
3. Don’t close unused accounts
It’s a good idea to keep all of your credit accounts open, even if you don’t use them. This allows you to lower your credit utilization.
4. Consolidate credit card debt
Lowering your credit card debt can drastically boost your score, and one way to do so is to consolidate your credit card debt. You might need to take out a personal loan to do so and usually, a personal loan will have a significantly lower interest rate than you’re paying on credit cards, The Motley Fool reported.
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5. Try a retirement savings plan
Consider using a retirement savings plan to lower your credit utilization. “This is a great option because retirement plan loans aren’t reported to the credit bureaus. This hack comes with a caveat, however, because retirement plan loans are deducted from your paycheck, so this is only a viable option if you can manage the lower salary,” Money Under 30 reported.