Copyright 2006 Credit Card Surplus

How important is it really to repair ones credit score?

Credit scores are tantamount to ones purchasing and borrowing power. Buying a new home, qualifying for a low APR credit card to shopping for a small business loan all depend on a consumers credit history. A low credit score identifies that a consumer may be overextended in bills, is unable to manage accounts or has a poor repayment behavior.

What is a credit score?

The credit score is prevalently referred to as a FICO score or a numerical portfolio of a consumers borrowing and bill repayment behavior. The information contained in a credit report is very similar to a report card. FICO credit scores range between 300 and 850. Credit scores above 850 are extraordinary. While a credit score of 300 is deemed exceptionally unusual, FICO scores generally do not fall under 500.

Annually, billions of credit approvals are determined based upon a consumers FICO score. While credit scores represent personal financial records of payment, a FICO scores are used to make other important lending and financing decisions:

* The dollar amount of a credit line or loan

* Interest rate

* Pre-approval of credit cards

* The authorization of a cash advances

* The type of cell phone service (pre-paid or standard)

* The approval to rent an apartment

Because credit scores use the last two-years of a consumers credit card, borrowing and repayment history, everyone has the power to improve their score. In order to understand how a credit score is assessed, its important to understand which components of ones credit history are used to calculate a FICO score:

* Payment History 35%

* Availability of credit and usage 30%

* Duration of open accounts with creditors 15%

* Credit inquiries (the number of applied credit cards) 10%

* Composition of credit file bankcard versus installment debt 10%

Use the following steps to raise your credit score

1. Obtain a copy of your credit score report from one of the three major credit bureau agencies: Equifax, TransUnion or Experian.

2. Thoroughly review your credit score for errors or outdated information. Quite often, certain lending institutions are not due diligent on updating old information. Contact specific companies to request contest errors and request credit corrections.

3. When reviewing your credit report, use the above listed areas of evaluation to help raise your credit score.

4. Because outstanding debt may taint a FICO score, try to pay-off balances on both revolving credit cards as well as other financial accounts. For the sake of appearances and the credit score, target bankcard debt to 60 percent with 30 percent towards installment debt. (If you plan to obtain mortgage approval, prove your ability to repay debt by paying down loans with installments as much as possible).

5. Closing unused accounts is a negative strategy to raising ones credit score. Factually, fewer open accounts with the same amount of debt ultimately reduces a credit score. For example, a credit line of $20,000 worth of debt with $10,000 worth of available credit represents a 50% debt ratio. By closing a credit card in good standing with a zero balance and $5000 credit line, a consumer would be raising their debt ratio to 67 percent and lowering their credit score. Target outstanding debt to account for only 20 to 30 percent of your available credit line.

6. Instead of opening up a number of credit cards to raise a credit score, find a credit card with a low APR to consolidate onto one credit card. However, caution is advised on people with a short credit life in opening a number of credit cards because it can ultimately lower a persons credit score, accounts for 15 percent of a persons credit information.

7. Make frequent payments. Credit scores maintain a record of how often or late a person remits payment. Since frequent payments account for 35 percent of a persons credit history, the strategy can be quite effective in raising ones credit score.