When you apply for credit, your FICO Score can influence the credit limit, interest rate, loan amount, rewards programs, balance transfer rates and other terms that lenders will offer you.
FICO Scores are used by lenders in connection with a variety of credit products including:
- Credit Cards
- Auto Loans
- Home Equity Loans & Lines of Credit
- Personal Loans & Lines of Credit
- Student Loans
Lenders can get your FICO Scores from all three of the major U.S. credit reporting agencies (TransUnion, Equifax and Experian). Your FICO Score from each agency may be different because it is based solely on the specific credit information in that agency's credit file, and not all lenders report to all three credit reporting agencies. Even in instances where the lender does report to all three credit reporting agencies, the timing of when information from credit grantors is updated to your credit file may cause differences in your scores across the three credit reporting agencies.
Tips for Better Financial Health Management
The best advice is to manage your financial responsibilities over time. Here are some tips:
Tip 1: Pay on Time. Late payments and collections can have a major impact on your FICO Score. Also, note that paying off a collection account, or closing an account on which you previously missed a payment, will not remove it from your credit report – it will stay on your report for seven years.
The fewer times your payments are late and the longer that you pay your bills on time, the better off you will be. If you've had a hard time paying your bills on time, consider signing up for an automated bill payment service. You can enroll online in AutoPay for your credit card account on the Payments & Transfers tab.
If you are having trouble paying your bills, contact your creditors or seek help from a non-profit credit counseling agency. A legitimate credit counseling agency can work with your creditors to lower your monthly payments. If you can begin to manage your credit responsibly and understand the benefit of paying bills on time, this can help your credit health over time.
Tip 2: Manage Your Accounts. High balances on your credit cards and other revolving credit can lower your FICO Score. You may want to increase the amounts of your monthly payments until all balances are manageable.
Have credit cards but manage them responsibly. In general, having credit cards doesn't hurt your FICO Score if you make payments on time. People without credit cards actually tend to be slightly higher risk than people who have shown they can manage credit cards responsibly.
Do not open cards that you don't need. While your available credit amount might increase, this behavior could backfire and lower your FICO Score, because new accounts can lower the average time you've had credit accounts established. Even if you have used credit for a long time, opening a new account can still lower your FICO Score.
Close unused credit cards cautiously. Owing the same amount but having fewer open accounts may actually lower your FICO Score. You may want to keep balances very low on your active credit cards when you close unused cards.
It's OK to request and check your own credit report. Every 12 months you are entitled by law to one free credit report from each credit reporting agency through AnnualCreditReport.com. Checking your own credit report will not harm your FICO Score.
Tip 3: When Seeking New Credit, re-establish your credit history if you've had problems in the past. Opening new accounts responsibly and paying them on time each month can help to develop a deep history for your FICO Score in the long term. Don't forget to keep paying all your other accounts on time. Just one delinquency reported on your credit report can set you back. Remember to avoid applying for credit you do not need.