Putting credit problems behind you — here's the gameplan

Dear myFICO,

When I bought my car last year, I found out that my credit isn't as good as I thought it was. I couldn't believe it when the salesman told me that I didn't qualify for their best rates because my FICO® Score was in the low 600s. My goal this year is to improve my credit so I can buy a home next year. Where should I start?

Lauren
Seattle, Washington

Dear Lauren,

It's often a shock when someone tells you that you don't have good credit. It's a little like being happy with the way your car is running and then it suddenly breaks down. You can think about checking your credit the same way you think about maintaining your car — it's better to do regular check-ins to make sure everything is running smoothly than waiting until something stops working.

When you purchased your car, you probably also realized that a lower FICO Score is costing you money due to the higher interest rates on your loan. This extra interest can add up to hundreds or thousands of dollars a year. The bigger the loan, the more impactful your interest rates will be. So, if you are planning on getting a home loan, you’ll want to make sure you are doing everything you can to get the rates you think you deserve.

Here’s four simple steps to get started on your FICO Score goals this year.

1. Determine your starting point

• Make sure you know what your FICO Score currently is. You can check your FICO Score with myFICO or with one of our FICO Score Open Access partners.
• Check your credit report.
• Consider checking your scores and reports from all three bureaus since your credit data may vary slightly from one bureau to the next.

2. Educate yourself

• Familiarize yourself with the factors that determine your FICO Score
• Look at your credit report data to determine what may be negatively affecting your FICO Score.

3. Create a credit improvement plan

• After you check your report and score and have identified your problem areas, focus on changing your credit behavior in those areas.
• For example, if you determined that the balances on your credit cards are too high, set a plan to pay down your balances.

4. Keep tabs on your credit

• Check in on your credit plan to make sure your changes are having the desired effect.
• Finally, check your credit and score before you apply. At least 6 months before you apply for your home loan, get your credit report and score so you know what rates you can expect. You can get a feel for what rates and payments may be based on your loan amount and FICO Score using this free calculator.

You've already taken the first step towards good credit by putting last year's woes behind you and starting the new year with some clear objectives. From all of us at myFICO, we wish you steady credit improvement this year and beyond.

Sincerely,
myFICO Team