NEWSLETTER
Improving Your
Credit Score
If your credit report
has incorrect information reported,
or if other information (such as paid
accounts showing as open) need to be
updated, the consumer should contact
all three of the repositories to
ensure that corrections are made in
all three systems. Typically it takes
30 days for the national repositories
to investigate and update a credit
file when requested to do so by a
consumer. Another option for clearing
up your credit is through such
programs as "Bureau Direct"
or "Rapid Re-score". There
is a cost associated with the
service, but credit can be changed in
48 to 72 hours rather than the usual
30 days.
Credit Scores (aka
FICO)
Credit scores are
predictive indicators of a borrower's
likelihood of repaying a credit
obligation. They are weighted
according to the following criteria
(example below, can vary per
reporting agency):
- 35%
-- Major and minor
delinquencies including late
payments, collections,
judgments, and bankruptcies.
- 30%
--Amount of outstanding debt
and balance to high-credit
ratios.
- 15%
-- Length of credit history
(how long accounts have been
open).
- 10%
--Inquires or applications
for new credit
- 10%
Type of credit (revolving
versus finance company
credit).
Note - Information
that is not considered in credit
scoring includes race, religion,
gender, marital status, borrower's
address, wages, height, weight, or
birthplace.
* There are four factor codes listed
on a credit report, which point out
the actions that are impacting your
score. These are the areas you need
to address to change a score.
How to Improve a
Credit Score
Credit scores reflect
a borrower's credit payment patterns
over time with the most emphasis
placed on recent information (24
months). There are some other
strategies a potential borrower can
employ that may have a positive
effect on his/her score.
- Pay
down the balances on
revolving accounts. Credit
scores are more negatively
affected by delinquencies on
revolving than installment
credit. In addition, high
outstanding balances on
revolving accounts can have a
major impact on the score. By
reducing the balance, but not
closing the account, the
borrower will improve their
balance/high credit rations
and positively impact his/her
score. If your balance one
one account is more than 50%
of the credit limit it may
drag your score down. It will
take the bureaus at least 45
to 60 days to reflect a lower
balance. The credit bureaus
can only change lower credit
balances with time, not with
any repair program. See how
long it will take to payoff credit
card balances. By paying
more than the minimum payment
requested your credit will
improve quicker.
- Pay
past due accounts current.
- Avoid
credit surfing. This is the
practice of shifting
revolving credit balances
from one card to another,
usually to take advantage of
low introductory interest
rates. The combination of
inquires and newly opened
balances, especially since
new balances will show on a
credit report before old ones
are reported as paid, can
make a consumer appear to be
in search of new credit.
- Avoid
finance company credit. New
credits in the form of cash
loans from a finance company
have more of a negative
impact on a borrower's score
than other installment or
revolving debt. Borrowers
should also avoid 90-day 12
months same-as-cash finance
company transactions in the
months preceding their loan
application.
- Have
erroneous information
corrected or updated.
Borrowers should pay
particular attention to the
accuracy of the credit
history, such as the dates of
last activity and/or
delinquency, since recent
information has the greatest
impact on credit scoring.
- Avoid
creating numerous inquires.
Each inquiry can lower
your score.
- Have
your scores corrected as soon
as possible.
