Credit
Lenders, Finance Companies, and even Insurance Companies look at your CREDIT SCORE to determine your willingness to pay back money in a timely manner. The most widely used credit score model is the FICO score, which was developed by Fair Isaac & Company, Inc. (and they’re named after their inventor!). Your FICO score is between 350 (high risk) and 850 (low risk).
Credit scores are not the only item that a bank looks at when deciding to grant you credit or not. Your credit score only considers the information contained in your credit report. They do not consider your income, savings, down payment amount, or demographic factors like gender, race, nationality or marital status.
There are several factors that go into the actual score calculation. Knowing these factors and using them to your advantage can be the difference of getting a loan or not. Sometimes 1 point can cost you a mortgage approval or even a higher interest! This is why it is crucial to stay on top of your credit at all times, especially before applying for a mortgage. Below are some of the factors that come into play in your score:
Past delinquencies, derogatory payment behavior, current debt level, length of credit history, types of credit and number of inquiries are all considered in credit scores. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.
Different portions of your credit history are given different weights. Thirty-five percent of your FICO score is based on your specific payment history. Thirty percent is your current level of indebtedness. Fifteen percent each is the time your open credit has been in use (ten year old accounts are good, six month old ones aren’t as good) and types of credit available to you (installment loans such as student loans, car loans, etc. versus revolving and debit accounts like credit cards). Finally, five percent is pursuit of new credit — credit scores requested.
Knowing these factors so well allows us to offer the following tips to increase your score.
Maxing Out Credit Cards
NEVER have a revolving account (credit card or line of credit) close to being MAXED out. So if a limit on a card is $1,000 and you owe $950, this will affect your score negatively, EVEN IF YOU PAY ON TIME. By reducing the balance to below 65% of the limit or $650 or less your score could be impacted by 20 POINTS or MORE!! What if you do not have the money to pay the balance down? Well, try to call the creditor and ask for an increase in the credit limit!! IT WORKS.
Collections
If a collection agency has your account but has not reported it on your report for over two years it is almost always best to NOT PAY THIS ACCOUNT (at least during the time of application on a loan). Why? Well, if you pay that Negative account that has not reported it will report after it is paid. Thus reviving a negative account. Even though it is paid it is still negative and having it re-report will bring your score down.
No Recent Activity
Reports with good and/or BAD credit in the past but no present credit are usually a DEAD report to the lender. This is because recent credit is a large impact on your credit score. If you do not have accounts reporting on a monthly basis, whether your past credit was good or bad your present credit could be a ZERO!
Inactive credit report
What to do? Get a credit card! We have a link to a card that with a small deposit offers GUARANTEED APPROVAL. This one card has helped boost scores from 580 to 640 in 30 to 45 days! Some of the clients had bad credit and some had good credit in the past. The result has always been consistent, reviving trade lines (credit accounts) will boost your score!
Pay on Time
Don’t forget, always pay your accounts on time. One recent late payment, no matter how large or small of a payment, can CRUSH your score for months!! I have seen 700+ credit reports got to 600 and less with one account being neglected.
Every report is unique to some extent. The tips above are general tips we use on a daily basis and are PROVEN to be effective. When we diagnose your report we more offer these tips and others. If a simple solution is not available, credit consulting may be recommended. This is where we offer a third party to help you dispute erroneous information on your report. Mistakes do happen and there is a way to correct them. You can read more about your rights with Fair Credit Reporting Act.