How to Obtain the Best Credit Score

Different financial establishments have different criteria in coming up what the best credit score is, although almost all of them use the FICO score at their basis. A FICO or Fair Isaac Corporation score is a rating

given to each consumer which help lending institutions decide on whether to grant credit to that particular consumer or not. The FICO, which came up with the rating scale, was established in 1956 by Earl Isaac and Bill Fair in order to help financial services companies in their high volume, complex decisions.

It is a range between 300 and 850 where the median is 723 and 60% of the scores are from 650 to 799. Although the best credit score can vary among the three different credit reporting bureaus, which are Equifax, TransUnion, and Experian, because they have different sets of data, their basis in coming up with the credit scores is still the FICO score.

The best can be attained by an individual in the following manners:

- Paying bills on time. Late payments can cause the individual's FICO score to decrease. The payment history comprises 35% of the FICO score therefore being up to date with bill payments can increase.

- Paying bills on time and increasing credit limits can also increase a person's FICO score. However, closing a revolving account can lower it. The credit utilization ratio, which accounts to 30%, is the ratio between the current revolving debt and the total credit limit. To get the best score, an individual must decrease his/her existing financial obligations or ask credit card companies to increase his/her credit limit.

- The length of credit history is also a factor in increasing the FICO score, which can also lead to the attainment of the best credit score. The longer the credit history, the higher the score. Credit history accounts to 15% of the score composition.

- The types of credit used comprise 10%. To have the best score, an individual must avail of the different kinds of credit like mortgage, consumer finance, revolving, and installment.

- Recent credit searches account for the last 10% of the FICO score. To have the best credit score, an individual must not seek new credit over short periods of time. Seeking new credit will allow new credit inquiries by financial companies which can decrease the FICO score. Mortgage and car loans may not hurt the FICO score as well as self-inquiries, inquiries by employers, and pre-screened offers for credit or insurance by companies.

Financial companies have different interpretations of credit scores. Generally, the interpretations vary largely on the strength of the economy and the appetites for risks by these lending institutions. Historically, a 620 credit score is the divider between prime and subprime. An individual must aim for the best credit score so that he/she will not have a hard time obtaining a load when the need arises.

Author
 Michael A. Jenkins

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