Fair Isaac Company, the corporation behind the formula for your credit score, recently announced it is updating its scoring system. This is good news for those with good FICO credit scores now and not so good news for those with less than stellar FICO scores. The new system is expected to roll out this summer, so it gives you some time to improve your score.
The most heavily weighted areas for both the current formula and the updated one are:
1. On-time payments
Let’s now look at some ways to improve your score in these two categories.
Chronically paying late means a drop in your credit score. Pay late once for one credit card bill, not so much. But paying late on a regular basis is going to mean a low credit score and additional late charges. Once the new FICO system kicks in, your credit score will drop even more dramatically. If you have the funds to pay your bills but seem unable to get to them on time, put as many as you can on automatic payment plans so that you DO NOT miss the payment due date.
If you are struggling to pay your credit card bills on time because of a lack on funds, take a hard look at your expenses and make some decisions on what expenses to cut out or cut back on. For example, decide if you need Netflix, Hulu, Amazon Prime and cable TV, or will one service be enough?
Over utilization of your credit also drops down your FICO credit score. This is when you are using more than 50% of your approved credit limit. It is better to have below 50% on all cards than to be maxed out some credit (cards) and have no charges on others. It has been suggested that having your usage below 30% is best. Work towards lowering your utilization percentages and your score will improve.
It is always a good time to improve your credit score and now is the best time to get started before the new FICO scoring system is in place. Work on creating smart habits now and watch your score increase in the future!