When credit scoring first caught the public’s attention, credit score providers not just refused to inform borrowers how they rated in the system, in addition they refused to share with exactly how the system itself operates. Today, that refusal still stands. Until Congress or state legislators force the matter, credit scoring remains a black box operation. Credit scorers place your credit data in their programs, out pops a number, however they won’t inform you of 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 starting to develop some keen insights. Moreover, while still cloaking their systems in secrecy, credit scorers have reluctantly released some clues over which borrowers can puzzle.
Indeed, at myfico.com, after you’ve paid your money, the website info provides some pointers on the way to boost your Beacon-FICO score. To see how much your score actually does improve (if any) in the next Twelve months, you need to pay another forty or so dollars. For that price, you get four more Beacon-FICO reports. Turns out that turning up the lights a little bit will prove to be a genuine money maker for Equifax and Fair, Isaac. Millions of Americans now click on to myfico.com and pay to glimpse their credit destiny.
I only say glimpse simply because the info provided still doesn’t go nearly far enough. It’s much more like, attempt this and (pay us) see what happens. You really can’t tell in advance the exact score boost their suggested changes might produce. Nevertheless, piecing together clues from myfico.com and a number of other other resources, listed below are the perfect tips available today:
Amount 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’ve met scored 630. After closing 6 of his 12 credit card accounts, his score went to 770, having said that it took several months before his score climbed up to that level.
Balances: Open accounts with balances lessen your score much more than open accounts per se.
Balance/limits: Numerous accounts with balances close to the limit will take down your score.
Credit inquiries: Whenever someone checks your credit file, it counts against your score; however, multiple checks within, say two weeks might not 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 education loan. (Lenders, though, without a doubt do care. Always pay your rent or mortgage.)
Recency counts: Late payments a couple of years ago don’t hurt as much as 2 months ago.
Black marks: Multiple lates on a multiple accounts, collections, unpaid judgments, and tax liens devastate your score.
Kiss of death: Go straight to credit scoring purgatory if you’re within 24 months of a past bankruptcy discharge or just 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:
Age of credit (15%)
Mix of credit (10%)
Amount of balances (30%)
Payment history (35%)
Recent credit inquiries (10%)
These clues shed some light relating to 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 necessarily generate a great FICO score. To increase your score, you must not just pay your debts punctually however , you should manage your credit with regards to the likes and dislikes of the FICO (or other) credit scoring program.