How to Improve Your Credit History and Credit Score

As you know, the FICO (Fair Isaac Company) score is one of the most important things in obtaining loans of any type – be it personal loan, home loan, business loan or credit cards. Many times you could get a loan but the interest rates are higher if the credit score is low. Credit scores range from 300 to 850. A credit score of 850 is almost never heard of. These credit scores of individuals are checked from Experian, TransUnion and Equifax companies.

Credit score of 700 or higher means excellent credit.

Credit score of 680 to 699 is considered good credit.

Credit score of 620 to 679 is considered average or OK credit.

Credit score of 619 or below is considered poor credit.

Typically, for a credit score of below 619 may or may not get a loan but the terms will be very attractive. Creditors who provide loans for such scores usually make a lot of money from the borrower by offering higher interest rates, various fees like loan origination fees, closing fees and many such hidden fees.

Many lenders especially credit card providers monitor individual credit scores and whenever a cardholder’s score drops below a certain level, they will decrease the credit limit drastically. While a credit score may not always indicate the individual’s credit worthiness and ability to repay a loan, it is one of the indicators of the individual’s responsibility. A person who pays the debt on time is considered to be a more responsible person.

First, you need to obtain a credit history. Once a year your credit history can be obtained for free from all the three companies at the following website:

At the time of this writing, this is the only legitimate website that will provide your credit history once a year for free without requiring you to give out your credit card details. If you need your credit score, then there will be a fee for that.

Credit scores can be increased easily unless there is a bankruptcy on your history. For removal of bankruptcy from credit file, you may have to talk to an attorney.

Here are 5 ways to increase your credit score:

1. After review of your credit history, go to the section, where it says items that may affect negatively. Normally, negative items on your credit history will remain there for 5 – 7 years. If there are items that are more than two years old, then you can request removal of that item by stating that the item is too old. Therefore, request removal of all negative items like late payment of credit cards, collection items, settlements, non-payment of bills etc. that are more than two years old by writing to Experian, TransUnion and Equifax.

2. If you ignored a payment because you were out of town or travelling and later it went into collection, then you can write to all the three companies (Experian, TransUnion and Equifax) requesting removal with an explanation. Lookup addresses of these companies online for writing to them. Many times, the credit card companies will oblige unless there are too many collection items. If you have legitimate explanation for a collection item other than that you simply did not want to pay the bill, then you can request removal. The companies that will help individuals increase their scores do this as well and claim that there is a specific format for writing these letters, special forms and also that it has to be written by a professional only otherwise they will get rejected. They also claim that they have very good relationship with these companies so their success rates are pretty good. The fact is that you can write an explanation to these three companies as if you were writing a letter to your boss! You do not need to be a professional to write these letters. They just need to know what explanation is and they do not care about the format. Of Course you have to respectful in the letter but there is no specific format or a special document or a form required for this.

3. If there is a collection item that has been falsely entered or if the amount is too small (below $100), then again you write some explanation to the three credit score companies requesting a removal. If the amounts are too small, then the chances of removing this from your credit file is greater.

4. If there is a credit card whose balance is more than the half of the credit limit, then pay off that credit card so the balance is less than the credit limit. Having balances more than half of the credit limit is viewed by credit card companies as bad and this will decrease the credit scores. Maintaining a credit balance less than half of the credit limit will greatly increase your credit score.

5. Setup automated payments of minimum amounts with all the credit card companies so if you forget, then at least the minimum amount is paid off on time. This will greatly increase your score. Later you can pay off as much as you can. If there are no late payments for more than a year, that will show some improvements in the credit score.

If there is a bankruptcy on your credit history, then it may be difficult to remove it although you may try to by writing to the three credit score companies. Alternatively, if your financial situation has improved considerably, then you can talk to a credit attorney to remove bankruptcy. While credit consolidation affects negatively on your credit score, you can still expect a reasonably good credit score. Changes to credit scores will take a few months to take affect so after you have made some changes for the better you have to wait for a few months to see the the results on your credit scores.