5 Steps You Can Take to Improve Your FICO® Score

If you’ve gotten any type of mortgage before, you understand how crucial your credit score is to loan approval.

Your credit score gives lenders a valuable snapshot of your financial health, including your ability to pay your debts and pay them on time.

In addition to loan approval, a better score helps you access more favorable rates, terms, and other benefits.

Let’s take a look at the steps you can take to improve your FICO® credit score so you can access the financing you need for your investment projects.

How do you improve your FICO® credit score?

A FICO® score is a specific type of credit score based on an algorithm created by the Fair Isaac Corporation.

FICO® scores are one of the most commonly used credit scoring systems in the U.S. They are calculated based on the information in your credit reports from the three major credit bureaus: Equifax, Experian, and TransUnion.

Each bureau may have slightly different data, so your scores from each bureau may reflect these differences.

FICO® scores typically range from 300 to 850. The algorithm considers several factors when calculating your score, including the following:

• Payment history
• Credit utilization
• Length of credit history
• Types of credit accounts
• Recent credit inquiries

Let’s take a look at the five steps you can take to start improving your FICO® score.

1. Download your free credit reports

First, you need to have a complete picture of your credit.

Head to AnnualCreditReport.com to request your free reports from Equifax, Experian, and TransUnion.

Federal law allows you to access a free copy of your report from each company every 12 months.

The idea is that you’ll closely review the reports and ensure there are no errors and that all information is complete and up-to-date.

Check for identifying information such as your name, address, and Social Security Number, and ensure that you recognize all accounts and loans displayed on your reports.

If you discover inaccurate information that is impacting your credit score, you can file a dispute.

2. Sign up for automatic payments

Your payment history makes up 35% of your FICO® score, making it the most important factor influencing your score.

The simplest thing you can do to ensure you never miss a payment is to set up automatic payments for every loan or account.

You can start by setting it up for just the minimum payment due, and if you’re able to contribute more one month you can go back in and adjust the figure.

3. Pay down high balances

Your credit utilization is the amount of credit you’re using divided by how much credit is available to you.

For example, if your credit limit is $10,000 and you’ve used $5,000 of that, your credit utilization rate is 50%. 

This figure makes up 30% of your FICO® score. 

A general guideline is to keep your credit utilization rate below 30%, but some people report not seeing a positive change in their scores until this rate is much lower.

Depending on your personal scenario and the other factors contributing to your score, it can help to be mindful of your utilization rate and aim to keep it as low as possible.

4. Don’t close old accounts

It might seem like it would help your score to get rid of accounts you don’t use anymore, but this isn’t the case.

As long as you aren’t responsible for paying hefty annual fees or other associated fees, it will help your score to keep your older lines of credit open.

Your credit history length, new credit, and credit mix make up 15%, 10%, and 10% of your FICO® score, respectively.

Closing older accounts and opening new accounts can lower the age of your credit, which in turn can lower your credit score.

Additionally, opening new accounts requires a hard inquiry on your credit report, which also negatively impacts your score.

5. Diversify your credit mix

As previously mentioned, your credit mix makes up 10% of your FICO® score.

A diverse mix of credit positively impacts your credit score because it demonstrates that you can responsibly manage different types of credit, such as credit cards, installment loans, and retail accounts.

While it’s not recommended that you open new accounts in an effort to boost your credit mix, thoughtfully opening accounts and managing them responsibly will influence your score in the long run.

Making your payments on time across your various types of credit will help you rebuild your score and get to where you want to be.

What’s the fastest way to improve your FICO® score?

Improving your FICO® score cannot happen overnight, but the fastest way to start boosting your score is to pay down your debts and make all your payments on time.

While hard money lenders like Park Place Finance often are able to be more flexible with minimum credit score requirements than standard banks, your credit score still is a factor in your approval.

However, your personal income and employment history aren’t a consideration for hard money loans — which offer borrowers such as investors major flexibility and more opportunities.

What credit score do you need to qualify for a hard money loan?

Park Place Finance requires borrowers to have a minimum FICO® score of 660, but some loan types may require a higher score depending on the scenario.

With a 660 score, you can access the following benefits:

• Flexible qualification requirements that are based on the property’s asset value, not your personal income or employment
• Fast and simple closing, often in a matter of days
• Term length options

Park Place Finance is a direct hard money lender with in-house capital. We have been in business for 17 years, with over $1 billion in loans funded.

We lend nationwide, giving more investors access to financing they may not be able to find anywhere else. 

Our loan products include:

• Fix-and-flip
• Debt service coverage ratio (DSCR)
• Bridge loans
• Ground-up construction

Park Place Finance is here to be a true investment partner. We pride ourselves on providing you with a personalized and efficient lending experience.

Fill out our simple online form with information about your unique scenario. Or, give us a call at 866-407-1599 to speak with someone right now.

We look forward to hearing from you about your next project!

Photo by Karolina Grabowska