FICO Strategery
First off, this advice is designed to raise your FICO Score. This will allow you to secure a lower interest rate mortgage for your home. Do not mistake this advice with improving your overall credit health. If you are like me, and have trouble remembering to pay your credit card bills, and always having that feeling that an un-maxed credit card is burning a hole in your pocket, then this may not be the best advice. Anyway, here are some tips to improve your score.
Delinquencies - 35% of your score is based on past delinquencies. How far behind, and how recently you were behind both play heavily on your score. What type of payment you missed also matters. If you had a bad spot, with lots of late pays, sit tight. Every month that goes by without a late pay will lessen the impact. Your score will recover on it's own.
If you are just coming into a bad spot, and know you will not be able to make all your payments, choose to miss revolving credit before an auto or home loan. The bigger (more important) payments carry more weight than the smaller ones. Your FICO will still go down, just not as bad.
Also, 60 day lates are worse than 30 day lates. Let's say you have two credit cards. If you can't make all your payments, let one of the two credit cards slip 30 days late. If you are still in a rough spot the next month, don't let that card go 60 days late. If anything, pay the card you missed last month, and let the other card go 30 days late. Being 30 days late on two cards is not as bad a 60 days late on one.
Of course, it's WAY better to pay all your payments on time. The above advice is damage control.
Credit History - 15% of your FICO is based on history. Don't close your cards out. This is one of the biggest mistakes people trying to improve there FICO make. FICO judges the age of your credit history. If you had a card for 10 years, then switch to a brand new card, but keep the old one open, you average history is five years. If you close the old one out, your history is 0 years. In spite of never missing a payment, your FICO can go down.
Credit Balances - 30% of your FICO is based on balances owed. Try to share your debt among more than one card. If you have three credit cards with two paid off, but one maxed out, you can raise your FICO by using those other two cards to pay down the maxed out card. Also, ask you creditors to raise your credit limit every six months or so. FICO looks at what percent of your card's limits are being used. It's not an average though. One maxed out card will hurt your FICO more than 3 cards at 33% of you credit limit.
Reported Credit Limit - Some credit card companies do not publish your credit limit to the credit bureaus. They don't want other companies to see your report, and realize what a good customer you would be. The result is that it shows up as a zero. To avoid this, pull your own credit and make sure your limit is properly stated. Call your credit card company and complain if it isn't.
Credit Activity - OK, I understand that having a balance on multiple cards can be more hassle than it's worth. However, if you have a couple cards that you have paid off, but kept open, use them at least every six months. It can be a very small purchase like a slurpee and candy bar at the Kwickie Mart. Then just pay it off. If your card isn't used at least every 6 months, it can become inactive. This is the same as closing the account when it comes to calculating your Credit History.
Paying Your Card Off Every Month - If you are financially secure enough to pay all your revolving debt every month, congratulations! This will help your score immensely. However, you can improve your score even more if you pay it before the Statement Date, instead of the Due Date. Lets say you rang up $500 on your card over the month. When your statement is generated, the credit bureau sees your balance as $500. If they see it at $0 instead, your score will improve a bit more. To do this, call your credit card company and find out when your statement date occurs every month. Let's say it's the 25th. Now, on the 19th of the month, call and find out what your balance is. Send in a check that day for the balance. By the the statement date, your balance will read $0 (or close to it). This is probably more effort than it's worth, but it will have a marginal effect on your score.
Piggyback On Somebody Else's Good Credit - A great way for you to help a young or damaged credit family member is to add that person as an "Authorized User" on one of your credit cards. You can do this, and then keep the card yourself if you aren't ready to entrust it to the family member. Just remember to use it every 6 months or so (buy them some gas). FICO will see the account, it's age, and the fact that it is being paid on time every month, even if the borrower is not paying it themselves.
Credit Mix - 10% of you FICO is based on the mix of credit. Ideally FICO would like to see 1 Mortgage, 1 Auto/Installment Loan, and 3-5 Revolving Credit Cards
Get A Mortgage - After the first mortgage payment is made, nearly every first time homebuyer will see a marked improvement in their score.
Inquiries - 10% of you FICO is based on Inquiries. Every time you apply for credit, an inquiry is placed on your credit report. The more you apply, the lower your FICO goes. There are some exceptions though.
Auto and mortgage inquiries work in a buffer. If you apply for a mortgage with three companies at once, FICO knows you are not actually going to do three separate new mortgages. It works the same with a car loan. The buffer system is supposed to work for 30 days. So if you apply for 4 mortgages in 30 days, it only counts as 1 inquiry. One note to be clear. Auto and mortgage buffers are separate. If you apply for one mortgage and one auto loan, it counts as two inquiries.
Personal credit pulls NEVER count against you. This is widely misunderstood. You can and should pull your own credit without penalty. Check out myfico.com for details on how to do this. FICO does not count this against you, because you are doing it for informational purposes only. I personally think FICO should give you a couple brownie points on you score for caring enough about your credit to do so.
In addition, other informational pulls will not hurt you either. Some employers pull credit on new employees, sometimes, your existing creditors check, just to make sure you haven't driven off the deep end. At any rate, any type of pull that would not directly lead to more credit is not counted against you.
Delinquencies - 35% of your score is based on past delinquencies. How far behind, and how recently you were behind both play heavily on your score. What type of payment you missed also matters. If you had a bad spot, with lots of late pays, sit tight. Every month that goes by without a late pay will lessen the impact. Your score will recover on it's own.
If you are just coming into a bad spot, and know you will not be able to make all your payments, choose to miss revolving credit before an auto or home loan. The bigger (more important) payments carry more weight than the smaller ones. Your FICO will still go down, just not as bad.
Also, 60 day lates are worse than 30 day lates. Let's say you have two credit cards. If you can't make all your payments, let one of the two credit cards slip 30 days late. If you are still in a rough spot the next month, don't let that card go 60 days late. If anything, pay the card you missed last month, and let the other card go 30 days late. Being 30 days late on two cards is not as bad a 60 days late on one.
Of course, it's WAY better to pay all your payments on time. The above advice is damage control.
Credit History - 15% of your FICO is based on history. Don't close your cards out. This is one of the biggest mistakes people trying to improve there FICO make. FICO judges the age of your credit history. If you had a card for 10 years, then switch to a brand new card, but keep the old one open, you average history is five years. If you close the old one out, your history is 0 years. In spite of never missing a payment, your FICO can go down.
Credit Balances - 30% of your FICO is based on balances owed. Try to share your debt among more than one card. If you have three credit cards with two paid off, but one maxed out, you can raise your FICO by using those other two cards to pay down the maxed out card. Also, ask you creditors to raise your credit limit every six months or so. FICO looks at what percent of your card's limits are being used. It's not an average though. One maxed out card will hurt your FICO more than 3 cards at 33% of you credit limit.
Reported Credit Limit - Some credit card companies do not publish your credit limit to the credit bureaus. They don't want other companies to see your report, and realize what a good customer you would be. The result is that it shows up as a zero. To avoid this, pull your own credit and make sure your limit is properly stated. Call your credit card company and complain if it isn't.
Credit Activity - OK, I understand that having a balance on multiple cards can be more hassle than it's worth. However, if you have a couple cards that you have paid off, but kept open, use them at least every six months. It can be a very small purchase like a slurpee and candy bar at the Kwickie Mart. Then just pay it off. If your card isn't used at least every 6 months, it can become inactive. This is the same as closing the account when it comes to calculating your Credit History.
Paying Your Card Off Every Month - If you are financially secure enough to pay all your revolving debt every month, congratulations! This will help your score immensely. However, you can improve your score even more if you pay it before the Statement Date, instead of the Due Date. Lets say you rang up $500 on your card over the month. When your statement is generated, the credit bureau sees your balance as $500. If they see it at $0 instead, your score will improve a bit more. To do this, call your credit card company and find out when your statement date occurs every month. Let's say it's the 25th. Now, on the 19th of the month, call and find out what your balance is. Send in a check that day for the balance. By the the statement date, your balance will read $0 (or close to it). This is probably more effort than it's worth, but it will have a marginal effect on your score.
Piggyback On Somebody Else's Good Credit - A great way for you to help a young or damaged credit family member is to add that person as an "Authorized User" on one of your credit cards. You can do this, and then keep the card yourself if you aren't ready to entrust it to the family member. Just remember to use it every 6 months or so (buy them some gas). FICO will see the account, it's age, and the fact that it is being paid on time every month, even if the borrower is not paying it themselves.
Credit Mix - 10% of you FICO is based on the mix of credit. Ideally FICO would like to see 1 Mortgage, 1 Auto/Installment Loan, and 3-5 Revolving Credit Cards
Get A Mortgage - After the first mortgage payment is made, nearly every first time homebuyer will see a marked improvement in their score.
Inquiries - 10% of you FICO is based on Inquiries. Every time you apply for credit, an inquiry is placed on your credit report. The more you apply, the lower your FICO goes. There are some exceptions though.
Auto and mortgage inquiries work in a buffer. If you apply for a mortgage with three companies at once, FICO knows you are not actually going to do three separate new mortgages. It works the same with a car loan. The buffer system is supposed to work for 30 days. So if you apply for 4 mortgages in 30 days, it only counts as 1 inquiry. One note to be clear. Auto and mortgage buffers are separate. If you apply for one mortgage and one auto loan, it counts as two inquiries.
Personal credit pulls NEVER count against you. This is widely misunderstood. You can and should pull your own credit without penalty. Check out myfico.com for details on how to do this. FICO does not count this against you, because you are doing it for informational purposes only. I personally think FICO should give you a couple brownie points on you score for caring enough about your credit to do so.
In addition, other informational pulls will not hurt you either. Some employers pull credit on new employees, sometimes, your existing creditors check, just to make sure you haven't driven off the deep end. At any rate, any type of pull that would not directly lead to more credit is not counted against you.
3 Comments:
Wow, thanks for all this information. I knew most of them, but the piece on paying before the statement date was very helpful.
I also didn't know that getting a mortgage will bump up the score. Too bad I won't need it by then!
Thanks!
Jon
hey greate info. very useful. as a follow up can you poste articles on
1. how to get best mortgage rates with bad credit score? and
2. what mortgages work best for people with bad credit?
one other place that has great articles on improving your credit score and how credit score affects you is bills.com.
i particularly like their getting out of debt ebook. that worksheet is awesome.
thanks
Hey, dat was an interesting article on improving one's FICO score. If you could please post a few details on the other FICO criteria's along with a short note on it, would be of great help.
However, came across an interesting finding on Credit Score Report and Information and thought it could be of use.
Post a Comment
Links to this post:
Create a Link
<< Home