John Ulzheimer is the president of consumer education for www.credit.com and a frequent contributor to Bottom Line Secrets, one of my consumer resources.
Ulzheimer says what most people don't know about credit scores is about a third of your score is determined by the percentage of your available credit that you actually use, not your payment history.
The range is 300 to 850. Ulzheimer says there are things you can do to drive your score up that range.
First, the common sense part: PAY OFF YOUR BALANCES. Nothing dramatically improves your credit score like paying off your credit card balances every month or paying off your loans on time.
In fact, Ulzheimer suggests you STOP USING YOUR CREDIT CARDS EXACTLY TWO MONTHS BEFORE YOU PLAN TO APPLY FOR A BIG LOAN. Use those two months to pay down the balances. That'll give the credit bureaus time to update your reports and improve your score in time for that big loan.
Also, consider BECOMING AN AUTHORIZED USER on a spouse's or relative's credit card, assuming you both are responsible card-users. That account will be included on your credit record and improve your credit score since it will be considered a jump in your available credit. The key, though, is RESPONSIBILITY...your responsibility and the responsibility of the person who lets you piggy-back on the account.
One thing Ulzheimer says you should never do to improve your score -- and people have actually done this -- is take out a car loan just to boost your credit score. Managing that loan responsibly will improve your score, but higher, unnecessary loan payments just to boost your score? That's silly.
Don't do that. Instead, concentrate on paying off the balances on the available credit you already have.
Follow this step-by-step plan to get your most accurate credit reports and credit scores at minimal cost:
* Go to www.annualcreditreport.com. This is the site the federal government and the three major credit bureaus (Equifax, Experian, TransUnion) set up to help Americans get free credit reports. You are guaranteed by law one free credit report a year from each of the bureaus, and this is the ONLY web site where you can get them at no cost. So that's three free credit reports right there.
* Go to www.myfico.com. This is where you should purchase your credit scores (fees vary depending on the market). "Myfico.com is the standard," says Alisha Tillery, consumer credit specialist for the RISE Foundation, a Memphis non-profit that specializes in helping consumers become credit-worthy and purchase their own homes. "Most lenders, probably 90 percent of them, are using the FICO score."
Lenders find the FICO scoring method to be the most accurate formula, and they will typically choose a FICO score over any other scoring model in determining whether someone qualifies for a loan. Your purchase will include three scores, representing each of the three credit bureaus, BUT THE EQUIFAX SCORE WILL BE THE MOST ACCURATE AND MOST ACCEPTED SCORE. That's because Equifax is the only one of the three credit bureaus who uses the actual FICO model for credit scoring.
"There are a number of credit scoring models that are used by lenders," says Steven Katz, spokesperson for TransUnion, "and while you may pull your report using a reputable scoring model from one of the credit bureaus, the lender may have not used the same scoring model."
That's why you should use myfico.com to calculate the score that will most likely be accepted by all lenders.