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Credit Scoring
(Please scroll down for quick tips on increasing your credit score!)
Payment History - Impact 35%
Paying debt on time and in full (especially ahead of the set term) has a positive impact, and late payments, judgements, and charge-offs have a negative impact.
Outstanding Credit Balances - Impact 30%
The debt ratios of outstanding balance to available credit is important. Keeping that below 50% is wise and below 30% is even wiser. It is never a good idea to close an account. The debt rations will go up and the number of seasoned lines will decrease. Pay outstanding debt down as close to zero as possible and evenly re-distribute the remaining balance among the open lines. Hitting the maximums of available credit can be very negative. It may be worth calling and asking the credit company to increase your available credit to lower the debt ration, provided they can do so without a credit inquiry.
Credit History- Impact 15%
The length of time a particular credit line has been opened is important. A seasoned borrower is stronger.
Type of Credit - Impact 10%
A mix of auto loans, credit cards, and mortgages is positive, rather than a concentration in credit cards only.
Inquiries - Impact 10%
Inquiries for credit will negatively impact the score. Auto and mortgage inquiries receive special treatment and 20 inquiries can be made in a 14-day period for auto or mortgage loans and will be treated as only one inquiry. The maximum number of inquiries that will reduce the score is 10. Any inquiries beyond that (11+) in a six-month period will have no further impact on the borrower. Each inquiry can cost 2-50 points on a credit score.
Quick Tips!
- Pay your bills on time. Delinquent payments and collections can have a major negative impact on your FICO® score.
- If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your FICO® score.
- Be aware that paying off a collection account, or closing an account on which you previously missed a payment, will not remove it from your credit report. Your FICO® score will still consider this information, because it reflects your past credit pattern.
- If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor. This won’t improve your FICO® score immediately, but if you can begin to manage your credit and pay on time, your score should get better over time. And seeking assistance from a legitimate credit counseling service will not hurt your FICO® score.
- Keep balances low on credit cards and other “revolving credit.” High outstanding debt can lower your FICO® score.
- Pay off debt rather than moving it around. The most effective way to improve your FICO® score in this area is by paying down your revolving credit.
- Don’t close unused credit cards as a shortterm strategy to raise your FICO® score. Owing the same amount but having fewer open accounts may lower your FICO® score.
- Don’t open a number of new credit cards that you don’t need, just to increase your available credit. This approach could backfire and actually lower your FICO® score.
- Avoid credit repair agencies that charge a fee to improve your FICO® score by removing negative, but accurate, information from your credit reports. No one can force credit reporting agencies or lenders to remove accurate information from a credit report. Credit repair companies often take your money without delivering what they promise, or provide only temporary improvements of your score, sometimes by removing accurate information that will reappear later.
- If you have been managing credit for a short time, don’t open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your FICO® score if you don’t have a lot of other credit information. Even if you have used credit for a long time, opening a new account can still lower your FICO® score.
- Do your rate shopping for a given auto or mortgage loan within a short period of time. FICO® scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
- Be careful about opening new accounts that you don’t need. Opening new accounts can lower your FICO® score in the short term. Beware of discounts or low interest rates being offered to entice you to open a new charge account that you don’t need.
- Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your FICO® score in the long term.
- Note that it’s OK to request and check your own credit report and your own FICO® score. This won’t affect your FICO® score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.
- Apply for and open new credit accounts only as needed. Don’t open accounts just to have a better credit mix— it probably won’t raise your FICO® score.
- Have credit cards—but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your FICO® score. People with no credit cards, for example, tend to be higher risk than people who have managed credit cards responsibly.
- Note that closing an account doesn’t make it go away. A closed account will still show up on your credit report, and its history will be considered by your FICO® score.
These tips provided by: Fair Isaac Corporation
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