Credit Repair » Fico/Credit Score

Don’t Close Credit Cards or Other Revolving Accounts

Steve — Fri, 22 May 2009 07:26:45 +0000

If your goal is to improve your credit score, don’t close any of your current accounts. Closing credit cards and other revolving accounts can never help your score, and it might actually hurt it. Shutting down accounts reduces your total available credit, and that makes your balances loom larger. That narrowing of the gap between the credit you’re using and the total credit available to you is one of the things that can hurt your score.

Closing older accounts can also hurt you, because the formula notes both the age of your oldest account and the average age of all your accounts. It’s particularly important to keep your oldest account active, because shutting it could make your credit history look years younger than it actually is-and your score could drop as a result.

It may not be enough, by the way, to keep your oldest credit card in a drawer. If you don’t charge something occasionally, your lender could decide the inactive account is more trouble than it’s worth and close it for you. To keep it active, you might want to charge some small, recurring bill to the card-a magazine subscription, your gym membership dues-and arrange to have the balance paid off automatically each month.

Myth 1: You Can Boost Your Score by Asking Your Credit Card Company to Lower Your Limits

Steve — Fri, 22 May 2009 04:39:21 +0000

This one is a variation on the idea that reducing your available credit somehow helps your score by making you seem less risky to lenders. Once again, it’s off the mark. Narrowing the gap between the credit you use and the credit you have available to you can have a negative effect on your score. It doesn’t matter that you asked for the reduction; the FICO formula doesn’t distinguish between lower limits that you requested and lower limits imposed by a creditor. All it sees is less space between your balances and your limits, and that’s not good.

If you want to help your score, tackle the problem from the other end: by paying down your debt. Increasing the gap between your balance and your credit limit has a positive effect on your score.

How is your FICO score determined?

Steve — Fri, 22 May 2009 02:37:55 +0000

It is difficult to judge exactly how much an action is going to affect your FICO score and it will vary among different people with different credit profiles. Not one piece of information or factor alone in your credit report will determine your score. Your FICO score only looks at information in your credit report. However, lenders look at many things when making a decision including; income, employment history, etc.

We are able to sort the data within a person’s credit profile into five categories; Payment History, Amounts owed, Length of Credit History, New Credit and Types of Credit used. The percenteges in the image below pertain to the general population. For some groups, such as people who have not been using credit long, the importance of these categories will vary. Payment History:

Account payment info on specific types of accounts such as credit cards, mortgage, installment loans, etc.
Severity of delinquency
Amount past due on delinquent accounts
Presence of adverse public records such as bankruptcy, liens, etc.
Number of accounts paid as agreed
Number of past due items on file
Time since past due items, adverse public records or collection items

Amounts owed:

Amount owing on accounts
Number of accounts with balances
Amount owing on specific types of accounts
Proportion of installment loan amounts still owing compared to original loan amount

Length of Credit History:

Time since accounts opened
Time sine account activity

New Credit:

Number of recent credit inquiries
Number of recently opened accounts
Time since credit inquiry

Types of Credit Used

Number of various types of accounts

What is a FICO score?

Steve — Thu, 21 May 2009 05:35:02 +0000

In simpler terms, a FICO score is simply your credit score. FICO stands for Fair Isaac Corporation which was founded in 1956. They developed the FICO score, which is a measure of credit risk. The Fico score is calculated statistically with information within a consumer’s credit file. FICO scores are used primarily in credit decisions by banks and other providers of credit. Banks may offer better interest rates on loans, mortgages or other financial instruments to those consumers who have a higher Fico score. Consumers with a low FICO score may be denied credit, charged higher interest rates, or require extensive income and asset verification.