A Suze Orman exclusive

If you’ve got a low FICO score, don’t get all depressed. Snap into action; there’s plenty you can do to snag a higher score. And it’s not nearly as hard as you might think. Here are the five major factors that determine your FICO credit score:

• Pay the Minimum Due on time each month. Notice I said MINIMUM. You don’t need to pay off your balance every month to get a good credit score. Just hand over the minimum on time every month and you’ll please the credit folks. Think about it for a sec: the thing lenders, landlords, and other businesses care most about when sizing you up is whether you will be diligent about paying your bills on time. Showing that you can pay your credit card minimums every month is considered a sign that you are indeed a good credit risk. Your ability to pay the minimum on time makes up 35 percent of your FICO score.
  
  
• Reduce your debt-to-credit ratio. Another 30 percent of your score is determined by how much outstanding debt you have relative to the total available credit limit on all your cards. (Part of this calculation also includes whether you have other debts such as car loans and mortgages, and how much you have left to pay on those, compared to the original loan amount.) The lower your debt-to-credit ratio, the better. And there’s plenty you can do with your credit cards to improve your ratio. Let’s say you have two cards. One has a balance of $5,000 and a limit of $10,000, and the other has a balance of $2,000 and a limit of $8,000. That means you have total credit debt of $7,000 and a total credit limit of $18,000, which works out to a ratio of 38 percent. Now let’s say you manage to cut your balances in half, so you now have just $3,500 in debt and the same credit limit of $18,000; your ratio will fall to 19 percent.
  
  The FICO brain trust says there is no specific number that qualifies as a “good” ratio, just that lower is always better.
  
  Another tactic for lowering your ratio is to boost your credit limit. But please be very very careful before you call up a credit card issuer and ask for a bigger limit. I only want you to do this if you know you have the will power to not use that extra money. The whole idea is to lower your ratio by changing the denominator in the calculation, without touching the numerator. For example, you maintain a combined credit card balance of $7,000, but you get your limits raised so your new combined credit limit is $25,000. That means instead of a 38 percent ratio you now have a 28 percent ratio. Again, only attempt this if you have the resolve to never touch the extra credit line.
  

• Save your credit history. About 15 percent of your credit score comes down to your credit history. The more history you have, the more evidence the FICO folks have to size up your credit habits. Therefore it’s a big mistake is to cancel a credit card you no longer use. When you cancel the card you wipe out all that history. Look at it this way: if you were trying to size up two people to entrust with your money, would you lean towards the person you’ve known for ages, or someone you’ve just known for a short time? That’s the way lenders think. Besides, when you cancel a card, you also lose the credit limit it carries, a move that hurts your debt-to-credit ratio we just discussed.
  
  Now if you are concerned you won’t be able to leave an unused card unused, then just tuck it away someplace safe where you can’t easily get to it—or hit it with a pair of scissors if you have to. Without formally canceling your history you’ll have made sure there’s no way you can use it.
  
  
• Avoid offers for new cards. Even though your mailbox is full of credit card offers, and you’re asked if you want to open a card at just about every check-out counter these days, I want you to just say no. Too many cards makes lenders nervous, and your card count is responsible for about 10 percent of your FICO score. The theory is that if you open up a bunch of new card accounts you are an accident waiting to happen: you have way too many opportunities to ring up big balances you won’t be able to pay.
  
  
• Get the mix right. While you don’t need 10 cards, lenders nevertheless also like to see that you can handle multiple credit lines simultaneously. An example of what they would consider a responsible array of personal debt would be a credit card or two, one department store card, and an “installment” loan such as student loan debt or a car loan. The idea here is that you want to show ‘em you are responsible enough to juggle a few different types of debt. It‘s a bit ironic, but the one thing that makes lenders absolutely nuts is if you have no cards or loans; they then have no way of gauging whether you will be a good customer. So your mix of credit cards and loans constitutes the final 10 percent of your FICO score.