Frequently Asked Questions on How To Improve Your Credit

Maintaining good credit can be a bit of a mystery to many. What factors go into deciding what your credit rating is? How do you improve your credit? What is your FICO score and how is it determined? What is the average credit score and how do you compare? All of these questions and more are answered below. If you are having problems, you may wish to read our article on credit repair.

Credit Questions

1. What is a FICO score?
2. What factors comprise my credit score?
3. What is the average credit score in the United States?
4. What is the average credit score in Canada?
5. What is a good credit rating?
6. How do I improve my credit score?

Credit Answers

1. Your FICO score is a number between 300 and 850 (some sources say 900) which lenders use to determine your credit worthiness. More and more this FICO score is used to determine your credit worthiness and figures large into what types of interest rates you can expect from lenders for loans and mortgages. FICO actually is an acronym which stands for Fair Isaac Corporation, which is the company that originated the now ubiquitous FICO score as early as 1958.
2. There are a wide variety of factors that go into making up your credit score. These include whether you pay your bills on-time, how much debt you have versus available credit — i.e. your debt to credit ratio, how long your credit accounts have been open, the types of credit accounts you have (e.g. revolving, consumer finance, installment etc.) and how often and recently you have made applications for new credit. These are the standard factors that lenders take into account when calculating your FICO score; however there are a variety of special considerations that will weigh heavily on your score should you have them on your credit report. These include:
   1. Bankruptcy. Obviously if you are in a situation of undischarged bankruptcy, you won't be able to obtain credit from any reputable lender. If your bankruptcy has been discharged however, if you are still under the 6-7 years period thereafter where it still appears on your credit rating, you will still have a large negative affect resulting from it. You may want to examine and undertake our set of 10 steps to recover your credit from bankruptcy. This is a great step-by-step procedure on fixing your credit.
   2. Unpaid court judgments against you and tax liens against your property both count against your FICO score
   3. Having several consumer finance credit accounts (sub-prime lender market accounts) works against you as far as your credit score is concerned.
3. The average credit score in the United States is 678 while the median score is is 723. This means that the lowest scores are further from the middle of the scale than the ones that are on the higher end of the spectrum.
4. The most common score in Canada is between 750 and 799, with 27% of the population falling into that group. The next most common scores are 800-849 which accounts for 24% while the third most common is 700-749 which represents 19% of the total population measured.
5. A good credit rating depends on what you are applying for, is a very subjective and also depends on the lender. For instance if you are applying for a $250,000 mortgage with a reputable lender, a FICO score of 650 probably would most likely have you declined and you definitely wouldn't get a competitive interest rate; however, if your credit score was the same, you may have no problem applying for and receiving a department store charge card. You should really try to keep your score above 700 if you want to get approved for credit and get any kind of reasonable rate at all and you are far better off if you are over 750.
6. The easiest way to improve your credit score is to simply pay your credit bills in full, on-time! Doing this, your credit score will gradually improve over time. While this certainly makes sense, it doesn't account for everyone's situation, as they aren't necessarily able to do so. Those unable to pay off all their accounts and maintain a zero balance monthly or who have special circumstances as outlined in #2, may wish to consult our 10 Steps to a Great Credit Score.

Manage Your Credit

Transunion and Equifax are both credit agencies that for a low cost, will provide you with online reports on exactly what your credit profile is and will definitely help you manage your credit. Check them out today!