I’m sure you’ve heard it before either from a friend or a spouse or maybe a family member. Heck, maybe you’ve heard yourself say it a few times before. “My credit isn’t that great” or maybe “You require good credit for this? Oh, nevermind, I have bad credit.” If this is you, or you know someone like this then listen up. Building great credit is not a difficult thing to do. You heard me. It’s not difficult. In fact, with some patience and just the tiniest amount of dedication it’s actually quite simple.

Changes To The FICO Score

The Fair Isaac Company (the company who came up with the FICO score) just recently updated their FICO scoring model for 2008.  They’ve made several changes which are supposed to make their score more accurate at predicting risk (and thus more competitive).  For detailed information on how the FICO score is calculated check out another post of mine: How Your Credit Score Defines You.

Some of the biggest changes in the FICO score are as follows:

• Applying for new credit accounts will hurt your score less
• Having high balances on your credit cards will hurt your score more
• Actively using open credit accounts will be more important
• “Piggybacking” on others credit is much more difficult to do
• Single serious setbacks will be less devastating to your score

Tips On Building Great Credit

Building good credit or even great credit is not that difficult.  Now that you’re an expert on what sort of things affect your credit score let’s cover some basic tips on how to build great credit.

Check your reports: Your credit score is based completely on the information in your credit reports.  If any of the information is incorrect on your report it may negatively affect your credit score.  You are entitled to dispute any incorrect information on your report.  It’s easy to get a copy of your report nowadays.  Just go to annualcreditreport.com and follow the steps in ordering your report.

Pay on time: Don’t be late with your loan payments and especially don’t miss a payment.  This can have a substantial negative effect on your FICO score.

Keep Accounts Active: Make sure to actively use all of your open credit accounts.  This will ensure that none of your inactive accounts are closed by the lender, which can negatively affect your score.  On this note it’s also important to keep your accounts open and not close them.

Keep low revolving balances: Using more than 30% of your credit card limits at any given time can lower your credit score.  If you regularly use your cards and use more than 30% of your credit limit then you might want to consider asking your lender to increase your credit limit.

Use every type of credit: There are two main types of credit: revolving accounts (such as a credit card) and installment loans (the most popular being a home mortgage or an auto loan).  In order to maintain a high score you will want to be actively using both types of credit.

There you go.  You have the knowledge on how these scores are caclulated, how they are used by lenders and other companies and even what to do to boost your score.  Now get out there and prove me right by building great credit!