Hints on Raising your Credit score
Your credit score, sometimes referred to as FICO score, is calculated by a system of scorecards. Scores range from 300-900. Your score is based on your credit history, both bad and good. Scores are generated by computer and no human element affects the outcome. Credit scores are designed to predict if the borrower will end up with a 90-day late in the next four months. Credit scores do not use race, color, religion, sex, national origin, marital status, or age as predictive characteristics. Occupation and income are not taken into account on your credit report.
FICO scores consist of the following:
- 35% of the score is based on payment history. Recent late payments count against you more than a late payment that occurred 2 years ago. Frequency and severity of "lates" are considered as well. A 90-day late is obviously worse than a 30-day late.
- 30% of the score is based upon the balances of revolving credit cards, not installment accounts. If your balance is over 50% of your limit, you are penalized. Your score will be higher if you have very small balances on your accounts instead of zero balances.
- 15% of the score is based on your credit history. The age of your oldest credit line and the number of new lines are considered. It is best to have 4-6 open credit lines and the longer you have had them the better.
- 10% of the score considers the type of credit you have. Finance company installment accounts are negative (e.g., the furniture store that advertises buy now and make no payments until 2009).
- 10% of the score is affected by the number of inquiries on your credit report. Each time you give someone permission to pull your credit, it shows as an inquiry. 5-7 inquiries are allowed per year without affecting your score. After that, each inquiry will cost you 5-15 points. When you are shopping for a car or a home, you are allowed multiple inquiries within a one-month period. If you purchase a car or home, these inquiries do not affect your score. If you do not make the purchase, they will count against you, because it appears to the computer program that you were denied financing.
- Maintain 4 to 6 major credit cards.
- Keep your balance on each card 50% or less of the available limit.
- Avoid opening and transferring your balances repeatedly to new cards. This “Credit Surfing” will affect your credit grade negatively.
- When consolidating credit cards, do not transfer more than 50% of the available limit to the new credit card.
- Refrain from having numerous requests about your credit for at least 6 months prior to purchasing or refinancing your home.
- Check your credit report to confirm that all accounts included in the BK are reported as such and not as collection, charge-off, or “late pay” accounts.
- Revolving credit (credit, department stores, etc.) weighs heavier on your credit score than installment debt (car loan, furniture, etc.)
- Pay down revolving debt to increase credit score and make your payments on time.
- Finance companies have a negative effect on your score.
- Do not “shop” for personal loans at these types of companies, as each inquiry will lower your score.
- An inquiry from a mortgage company does not have a negative effect as they are coded differently.
- Buy your furniture, car, etc., after your home loan closes, not during escrow.
- If applying for a job that requires a credit check, request that the employer run an “Employer/ Employee Credit Report.” This will not impact your score as an inquiry.
- If you have any dispute about the information in your credit report, you have a simple process in which to challenge the errors.
- The Fair Credit Reporting Act supports you and guarantees responses in a timely manner.
- Check your credit report for duplicate information. Many times the same collection or debt is reported twice therefore lowering your score. Request that the credit bureaus remove all duplicate and erroneous information.
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