A credit score number is often called a FICO score, for Fair Isaac Corp., the California company that developed the system upon which it is based. Scores range from the 300s to about 900, with the vast majority of people falling in the 600s and 700s. The higher the score, the better. Scores higher than 725 are considered good while those which are below 600 are considered poor. Maximum credit scores that range from 750 to 850 are excellent and show creditworthiness of the individual applying for a loan.
Most people's reports are not perfect. No matter how early you mail that check with payment, it may still arrive late or get lost, so you should expect to find some negative information on your report from time to time. Mistakes can be made when entering your information into the system at credit bureaus. Lenders, banks and credit card companies make mistakes too. In fact, over 60% of credit reports contain some inaccuracies or errors.
And it's usually not a big deal. Even with some flaws on your report you will still be eligible for credit at competitive rates and good terms. Especially if you have long credit history with a lot of information in your file, your good deeds will less the effect of one or two negative items. If you are young or a new immigrant with short history, a negative item will have a stronger effect on your score.
So, what do you need to do to maintain a maximum credit score ?
1. Get a copy of your credit report, review the information in it and, if you find any errors, to have them corrected. You can have inaccurate information removed by either contacting the credit agency or contacting the creditor. The Fair Credit Reporting Act requires all credit-reporting agencies to investigate any disputed items at no cost to the consumer. The law requires that the creditor verify the entry within 30 days or the information must be deleted from your file. If your credit report gets corrected, you will receive a free copy of the revised report.
2. Pay your bills on time. This is critical. Paying on time means mailing your check at least five days prior to due date or scheduling online payment at least 2 days before. Do not wait until the due date or try to backdate your checks when mailing them late, as this usually will not work.
3. Work to increase your debt-to-credit ratio. This can be done by repaying as much as you can of what you owe on the loans you have, by increasing the credit limit on the credit cards that you have while keeping the balances low, and / or applying for a new credit card with high limit, but keeping the balance low or zero. Just do not go around applying for too many cards at once (see # 5 below), and do not be tempted to spend more money just because you now have more credit available!
4. Protect your credit history. Fair Isaac's model assumes people who have had credit for a long time are less risky. So if you have credit cards or accounts that you want to close, think about it first. Canceling a card will wipe out part of your history and increase your debt-to-limit ratio, both of which will reduce your score. If you want to cancel several cards, start with the newest one first, and then in a month or two see what it does to your score.
If you do not have any history you will not have any FICO score, because the score is purely a calculation based on data collected by the credit bureaus. Believe it or not having no score can be as bad or even worse than having low score. You may find that it is really tough to get a loan, or you may have to pay a lot higher interest rate, because the lender does not have a clue wherever you are a credit risk or not.
5. Do not initiate too many requests for credit, loans or other debt instruments over a short period. If you have many recent new inquiries, your score will go down.
6. Create the right credit mix. Lenders like to see a good mix of credit cards, retail cards, and installment loans, such as car loans or home mortgages. Someone with only a secured credit card is generally considered riskier than someone who has a combination of installment and revolving loans.