Improve Your Fico Score
Before we can explain How to improve your fico score first you must
understand what makes up your FICO Scores
FICO Scores are calculated from a lot of different credit data in
your credit report. This data can be grouped into five major
categories as outlined below.
These percentages are based on the importance of the five categories
for the general population. For particular groups - for example,
people who have not been using credit long - the importance of these
categories may be somewhat different.
Payment History
Your payment
history, also known as payment performance, is the record you’ve
established by either paying or not paying your bills on time. This
history is recorded on your three credit reports which reside at the
three U.S credit reporting agencies:
Equifax,
TransUnion and
Experian. Your credit reports will reflect your payment history on
any credit account you’ve had in the past 7 to 10 years. This
includes, but is not limited to, student loans, mortgages, bank and
retail store credit cards and auto loans.
·
Account payment information on specific types of accounts (credit
cards, retail accounts, installment loans, finance company accounts,
mortgage, etc.)
·
Presence of adverse public records (bankruptcy, judgments, suits,
liens, wage attachments, etc.), collection items, and/or delinquency
(past due items)
·
Severity of delinquency (how long past due)
·
Amount past due on delinquent accounts or collection items
·
Time since (recency of) past due items (delinquency), adverse public
records (if any), or collection items (if any)
·
Number of past due items on file
·
Number of accounts paid as agreed
Amounts Owed
Having credit accounts and owing money on them does not mean you are
a high-risk borrower with a low score. However, when a high
percentage of a person’s available credit has already been used,
this can indicate that a person is overextended, and is more likely
to make some payments late or not at all. Part of the science of
scoring is determining how much is too much for a given credit
profile.
·
Amount owing on accounts
·
Amount owing on specific types of accounts
·
Lack of a specific type of balance, in some cases
·
Number of accounts with balances
·
Proportion of credit lines used (proportion of balances to total
credit limits on certain types of revolving accounts)
·
Proportion of installment loan amounts still owing (proportion of
balance to original loan amount on certain types of installment
loans)
Length of Credit
History
A longer credit
history will increase your score. However, you can get a high score
with a short credit history if the rest of your credit report shows
responsible credit management.
New accounts will lower your average account age, which will have a
larger effect on your score if you don't have a lot of other credit
information. Also, rapid account buildup can look risky if you are a
new credit user. If you have been managing credit for a
short time, don't open a lot of new accounts too rapidly
·
Time
since accounts opened
·
Time
since accounts opened, by specific type of account
·
Time
since account activity
New Credit
While paying
your bills as agreed and not accumulating too much debt will likely
result in an excellent credit score, there are certain activities
that will lower one's credit score.
Applying for
a new credit card, mortgage or car loan. Unless you don't have much
of a credit history and haven't established a credit rating yet,
applying for a new credit card, a mortgage or auto loan can lower
your credit score by about 10 or 15 points. If you haven't used
credit much or have a short credit history, applying for a new
credit card, mortgage or auto loan could raise your credit score by
ten or 15 points.
Missing a
monthly payment can knock as much as 35 points off your credit
score.
Filing for
bankruptcy can knock as much as 200 points off your credit score if
your credit score is high.
Don't Max
out your credit cards. Maxing out your credit cards can knock
off anywhere from 20 up to 120 points off your credit score. A good
rule of thumb is to never carry credit card balances that are more
than 25% of your total credit card limit.
·
Number of recently opened
accounts, and proportion of accounts that are recently opened, by
type of account
·
Number of recent credit
inquiries
·
Time since recent account
opening(s), by type of account
·
Time since credit
inquiry(s)
·
Re-establishment of
positive credit history following past payment problems
Continued
Mortgage Glossary10
