When credit scoring first caught the public’s attention, credit score providers not only refused to inform borrowers how they rated within the system, additionally, they refused to share with exactly how the system itself operates. Today, that refusal still stands. Until Congress or state legislators force the topic, credit scoring remains a black box operation. Credit scorers place your credit data in their programs, out pops a number, nonetheless they won’t inform you how or why they calculated that figure. You’re left in the dark.
Fortunately, although the credit scorers never have shined much light into their black boxes, mortgage loan reps and underwriters who see everyday results are setting out to develop some keen insights. In addition, while still cloaking their systems in secrecy, credit scorers have reluctantly released some clues that borrowers can puzzle. Indeed, at myfico.com, after you’ve paid your money, the website info gives you some pointers on the way to increase your Beacon-FICO score.
To determine how much your score actually does improve (if any) over the next Twelve months, you must pay another forty or so dollars. For that price, you get four more Beacon-FICO reports. Turns out that turning up the lights just a little will prove to be an actual money maker for Equifax and Fair, Isaac. Millions of Americans now click on to myfico.com and pay to glimpse their credit destiny. I say glimpse considering that the info provided still doesn’t go nearly far enough. It’s much more like, implement this and (pay us) see what happens. You really can’t tell beforehand the exact score boost their suggested changes might bring on.
Nevertheless, piecing together clues from myfico.com and a lot of other resources, listed here are the top tips available today:
Quantity of open credit accounts: You can have too few or too many. The optimum number probably ranges between four and six. One highly paid, credit-perfect (no lates) executive I know scored 630. After closing 6 of his 12 credit card accounts, his score went to 770, however it took six months before his score climbed up to that level. But, on the other hand I have 16 credit cards and a great score. I guess that’s why they keep the algorithm secret.
Balances: Open accounts with balances lower your score much more than open accounts per se.
Balance/limits: Numerous accounts with balances close to the limit brings down your score. This means do not max out your creditcard!
Credit inquiries: Whenever someone checks your credit file, it counts against your score; however, multiple checks within, say two weeks mightn’t hurt as much as when it appears that you’re merely shopping different lenders for just one loan. Your personal inquiries don’t affect your score.
Payment record: Obviously, late payments hurt your score, but supposedly FICO doesn’t distinguish between late mortgage payments and late payments on your VISA or student loan. (Mortgage companies, though, without a doubt do care. Always pay your rent or mortgage.)
Recency counts: Late payments 24 months ago don’t hurt as much as 2 months ago.
Black marks: Multiple lates on a multiple accounts, collections, unpaid judgements, and tax liens devastate your score.
Kiss of death: Go right to credit scoring purgatory if you’re within 24 months of a past bankruptcy discharge or even a foreclosure sale. Chapter 13 bankruptcy plans and credit counseling debt management plans also count heavily and negatively. Myfico.com also implies that some categories weigh more heavily than others:
These clues shed some light about the credit scoring process, but much too little. Perhaps above all, they display why perfect credit in the sense of no late payments do not really generate a very high FICO score. To increase your score, you mustn’t only pay your bills on time nevertheless , you ought to manage your credit using the preferences of the FICO (or other) credit scoring program.
What techniques did you use to enhance your credit score?