June 12, 2012

Tips for Increasing FICO Scores

This blog is going to be part 2 of my last blog.  If you read the last blog you know how important FICO scores can be to one’s overall financial well-being.  If you have no credit or need to repair your credit here are few tips that will put you in a better position to raise your credit score.

FICO Scores are measured by three different creditors.  Transunion, Equifax and Experian are the three bureaus that report on your credit.  Therefore, your credit report consists of three different credit scores and most creditors will look at the middle credit score to qualify you for whatever you may be applying for.   Credit scores range from about 300 – 850 with the higher the score being better.   Anything above the 750 credit range is considered excellent credit.  Anything under 600 credit is considered below average and will most likely not qualify you for the best programs and rates.  Here are the websites of the three bureaus if you are looking for more information.

1.     Name of Score: EQUIFAX/FACTA BEACON 5.0 Range 334-818


2.     Name of Score: TRANSUNION/FICO CLASSIC (04) Range 309-839


 3.     Name of Score: EXPERIAN/FAIR, ISAAC (VER. 2) Range 320-844


Payment history counts for about 35% of your credit score.  Amounts owed comes to about 30% of the total score Length of credit history counts for approximately 15%, new credit for 10% and 10% types of credit used.

You want to have at least 3 credit lines open at all times (types of credit portion).  You want some type of installment (personal loan, car loans etc.) and revolving credit (credit cards, home equity lines of credit etc.).  Your total balances should be under 30% of your total credit limit (Amounts Owed section).  For example if you have a credit limit of $1000 on a credit card you want to keep the balance under $300 at all times.  Not that you can’t go above that but you want to pay that down each month.   Payment history looks at if your payments were paid on time, usually one late won’t destroy your credit, but you do not want accumulate multiple late payments as this is a large portion of your FICO score.   Length of credit also counts for a nice sized portion, the longer you show you have been making your payments on time the higher the credit score is going to be.    As far as new credit, you don’t want to keep opening and closing credit cards or loans, keep the old ones open and use them once and a while to show you can repay the balances.

There are other things that contribute to your credit that don’t show up as credit lines.  Foreclosures, bankruptcies, judgments (i.e. unpaid parking tickets) and tax liens (unpaid property taxes, personal taxes) can seriously hurt your credit profile and chances of being qualified for a loan, check to make sure you don’t have anything like this reported on your credit.  Things like cell phone and cable bills are not reported on your credit, but it is essential to keep up on the payments because they will eventually send your bill to collections if unpaid for a certain amount of time.

Dispute old negatives, check your credit at least once a year to make sure there is nothing on there that should not be.  Credit bureaus can mess up just like anyone else and report something in error. You also want to make sure no one has tried to steal your identity.  With a weak economy people come to desperate measures to get money.

If something was reported incorrectly you will have to contact all three bureaus to get them to remove it.  You will have to write in a letter and they have 30 days to respond to you or they have to take if off your credit.  Mail it certified or registered so you have proof of it being sent.  You will need to keep tract of everything.  Here are some sample letters I found online. http://www.creditinfocenter.com/forms/sampleletter5.shtml

***Beware this is not always going to be easy to get them to remove things but with time and persistence will get it taken off if in fact they are reported in error.  You can also dispute items and possibly settle for less than the full balance to close the account out.*****

It takes time to build up your credit.  You have to be patient and proof over a period of time that you are capable of making your payments in a timely manner.    For more information go online and you will find plenty of information to help get that credit score up.   A good sight to check out is www.myfico.com.

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