Improve Your FICO Score

What is FICO Score?

FICO score, short for Fair Isaac Corporation score, is a three-digit number ranging from 300 to 850 that measures your creditworthiness. Often referred to as credit score, the FICO score is a marker used by lenders to judge your ability to pay back a loan. Your FICO Score is decided based on your debt & credit history and repayment ability.

According to Equifax (credit reporting agency), a FICO score of 300 is the poorest, and 800 is excellent. A score anywhere between 670 to 739 is good, and between 740 and 799 is considered very good.

Benefits of a High FICO Score

A strong FICO score can open many doors of opportunities for you. Some of them are listed below:

1. Easy loan approval: When you have a strong FICO score, getting approved for loans becomes easier. A high score proves your creditworthiness and shows you're a responsible borrower who's unlikely to skip out on payments. This way, the lenders have more confidence in your ability to repay.
2. Favorable cost of borrowing: A good FICO score can help you qualify for better interest rates of APRs on loans bringing the total cost of borrowing significantly in your favor.
3. Credit card benefits: A high FICO score can open doors to premium credit cards with generous rewards, cash-back opportunities, and valuable travel benefits.
4. Easy approval for rent: A high FICO score demonstrates your ability to make timely rent payments. This increases your chances of being approved for the rental property of your choice and makes the process easier for you.

How to Improve Your FICO Score?

You can improve your credit score by following a number of healthy credit practices. Some of them are explained below.

1. Check Credit Reports: Keeping track of your credit report consistently can go a long way in increasing your FICO score. Take advantage of the free credit check services and keep an eye out for errors that might be affecting your credit score. If such an error is spotted, contact the credit bureau and raise a dispute.
2. Lower Credit Use: The percentage of credit used is a crucial influencer of your credit score. The recommended percentage of credit use varies but according to FICO’s recent study, people with a 785 or higher FICO score only use 7% of their credit limit. So, try to cut back your credit usage to improve your FICO score.
3. Pay All Bills on Time: Late payments can leave their mark on your credit score for a long time. Try to make full monthly payments on your credit cards to prevent accruing interest and maintain and strong FICO score. Timely payments demonstrate that you are financially responsible and make you a favored applicant in the eyes of lenders. Consistent timely payment will lead to an increase in the FICO score.
4. Avoid Multiple Credit Accounts: Contrary to common belief, opening multiple credit accounts may harm your FICO score. While opening a new credit line and making timely payments may improve your FICO score, exploiting this trick can often backfire. Try to manage your existing account responsibly and avoid multiple credit accounts to improve your FICO score.