The credit gods have offered a few snippets about how to improve credit scores.
Fair Isaac, the creator of the FICO scores, and Your Credit Companies, a group of financial services companies, including Chase Manhattan Bank and Citigroup, have announced an outline of steps consumers can follow to better understand and avoid making mistakes with their credit scores.
FICO credit scores, which are the scores used by most lenders, range from 300 to 850 and are calculated by evaluating five main categories of consumer credit report data: payment history, amounts owed, length of credit history, new credit applied for or taken out, and types of credit used, according to the announcement.
A study by the Federal Reserve showed that nearly 74 percent of Americans have credit scores of 661 or above, which indicates that the majority of consumers are low credit risks and are likely to be eligible for lower interest rates on mortgages, credit cards and other loans, the announcement said.
Paying bills on time is "the best thing" consumers can do to help their score, according to Fair Isaac and the group. If late payments form part of a consumer's credit history, it is recommended to demonstrate timely payment patterns as soon as possible.
Prospectives were also advised to shop for a mortgage within a focused period of time to avoid multiple inquiries from affecting the score. When shopping for a mortgage, inquiries at several lenders should be made within a 14-day period to have them count as only one inquiry.
The groups also revealed that FICO scores ignore all mortgage inquiries made in the 30 days prior to scoring. In other words, if a loan is found within 30 days, the inquiries won't affect the FICO when shopping for credit.
It was also recommended that consumers check their credit reports directly from either Equifax, Experian, or TransUnion, to make sure there are no errors or on their file. As part of the Fair and Accurate Credit Transactions Act of 2003, consumers nationwide will have access to a free credit report by September. Currently, only residents of Western and Midwestern parts of the nation qualify for this action, which is being rolled out to each part of the country in phases.
Consumers were also advised to pay off debt on all credit card accounts instead of trying to consolidate it into one account as doing so will only lower the score for a few months but not in the long run.
Those in financial difficulties should contact a legitimate credit counselor to help them manage their credit, as the sooner payments are made on time, the sooner the score will improve.