Thanks to the virtual meltdown of the financial sector in the United States, credit issuance is likely to become a much stricter industry, especially in the United States. Many people have found themselves with a low credit score, and considering the changes in the formula for determining FICO scores, some of the things you do can hurt or improve your score. Here are some of the actions you can take which may alter your FICO score compared to how it was calculated in the past:

• Applying for new credit may hurt your score less
• Using the accounts you have on a regular basis may increase your score
•  Carrying a high balance on your cards may hurt your score more

Some of the major changes include authorized users on cards no longer being able to “piggyback” the credit rating of someone with good credit. Single infractions are now going to have less of an impact on a credit score reduction as well. If you paid a bill late even once your score used to drop by as much as 100 points. Now, the focus is more on whether or not you make regular payments on time, and single infractions no longer have the devastating effect they used to on your credit.

With this new information, I’ve compiled a list of 5 things you can do this year to improve your credit score, taking advantage of these new rules:

1. Watch your limits. Try not to use more than 30% of your available credit and if you can use less than 10% that is even better. The higher your balance, the more your FICO score will be negatively impacted. The credit bureaus don’t distinguish between the balances which you pay off each month and those you carry. If you carry high balances but pay them off every month, consider asking for a credit limit increase to reduce the amount of available credit which you are using.
2. Don’t close your accounts. It’s well known that having open yet inactive accounts is better than closed ones. With these new rules, having open accounts in good standing will help increase your score even more than in the past, while too many closed accounts will hurt it.
3. Keep your accounts active. The FICO score is now recognizing when you leave your cards at a zero balance, so it’s best to make a couple of small purchases on your cards every month and then paying them off when you receive your statement. Cards which have carried a zero balance for a long period of time are going to start having a reduced impact on your score, so you want to keep them at least somewhat active.
4. Mix things up a little bit: FICO scores are now taking into account your mix of revolving credit, which allows you to take money out and pay back at will, such as credit cards and lines of credit, as well as installment loans where you can only pay back the amount (such as mortgages and car loans). Your mix of credit types will become much more important in 2008, and if you’re trying to increase your score a good way to do this is by ensuring you have a mix of these two types of loans. However, be sure not to get extra credit if you cannot afford it: it’s better to have your credit score be average because you didn’t get that extra loan than poor because you got the loan and couldn’t afford to repay it.
5. Pay your bills on time. While a single late payment won’t have the impact it used to on your credit, a bad track record for payments will have a much larger impact on your credit score. Make one mistake and you’ll be fine, but make many and you’ll be worse off than you were before!

If you’re looking to increase your credit score, using these techniques to take advantage of the new system is one of your best options. Keeping up to date with FICO formula changes helps ensure that you know what’s important when it comes to your credit.

Popularity: 100% [?]