Table of Contents
WHAT MAKES UP YOUR CREDIT SCORE
Payment History – 35%
This is the most self-explanatory category, simply pay your bills on time and do not be more than 30 days late on any bill, as creditors start reporting late payments on your credit at that time.
If you do foreseeing yourself being late on a bill, you are better off notifying the creditor in advance as some installment loans might allow a special 30-day forbearance without any adverse effect on your credit.
A recent late payment affects your credit more adversely than an older one, so do not be surprised to see a drop of 60 odd points on a new late you incur if you currently have a flawless credit history
Credit Card Capacity – 30%
It is not how much money you owe, but what percentage of your available credit limit you are using up. Your credit score will be lower if your combined credit card limits are $500 and you are using $400 of it, as compared to you using up $50,000 of $100,000 available credit.
Therefore you should carry balances on not more than a couple of credit cards and preferably keep their balances at 10% utilization of the credit limits of those accounts. Doing so can result in an increase of over 60 points
Length of Credit History – 15%
The older your credit history is the higher your credit gets propelled by this factor. You can expect someone with a 20-year-old credit profile to have a relatively higher Fico Score than compared to someone that has had a credit profile for 10 years, considering all other factors are similar
Types of Credit – 10%
This factor pertains to the assortment of the credit accounts found on your credit profile. In order to satisfy this category, one is expected to have open and active at least one of each of the different credit accounts: a) Mortgage Account b) Installment Account c) Revolving/credit card account.
Of the three different types of accounts above, not having an open credit card account will affect your credit the most. So for those who do not have an open credit card, simply by acquiring one will result in a Fico Score boost of up to 30 points.
New Credit – 10%
Your score is also calculated by factoring in the average length of time accounts have been open on your credit report. Opening a new account contributes negatively to this factor, also it is not wise to close old accounts as they will lower this average. Therefore you will notice as accounts become more seasoned your credit score will propel provided no new accounts have been opened.
Also factored into this category are recent requests for your credit reports made by prospective lenders and the number of recently opened accounts you have. It is advisable to keep both at a bare minimum.
HOW TO INCREASE YOUR CREDIT SCORE
PAYMENT HISTORY CORRECTION WITH EFFECTIVE CREDIT REPAIR DISPUTES (+/- 100 point score increase)
Here you want to make sure your credit report is clean of any kind of questionable negative payment information. Most credit repair companies just are limited to simple credit challenges but there is much more than can be done to rectify negative information on your report. May they be collections, late payments, liens, judgments, tax liens, each can be addressed in a surgical manner using the appropriate tactics below:
A) An effective credit bureau dispute letter: Utilizing this approach, you can dispute items with each of the 3 credit bureaus. This method is primarily effective for any negative information that may have fallen behind about 4 years ago or longer.
B) Advanced collection settlement techniques: If you have recent collections on the credit report which are valid collections, these are not likely to come off with credit bureau disputes, hence you want to utilize a pay for delete technique to ensure removal of these accounts.
C) Direct creditor disputes: If there are recent late payments or charge-offs resulting from a final missed payment, you will have to engage the creditor directly in a strategic dispute to get them to remove the negative reporting of the tradeline.
D) Victims of Fraud and Identity Theft: There’s a special procedure to remove fraud related items from the credit report.
CREDIT CARD CAPACITY OPTIMIZATION BY PAYING DOWN CARDS: (possible score increase up to 60 pts)
Pay down all your revolving account balances to a zero balance, but do not close these accounts. (i.e., keep balances low and limits high). However, leave a balance on only one card of around 2% of the entire credit limit.
If funds are limited then pay down the credit cards first that are near their limits (assuming interest rates are close to the same). You can also explore moving revolving balances to installment debt; but again, do not close the revolving accounts.
LENGTH OF CREDIT & NEW CREDIT OPTIMIZATION: (possible score increase up to 40 pts)
A) Minimize new accounts, do not open any credit accounts unless necessary or if you are looking to diversify your mix of credit accounts.
B) If you are transferring balances due to an offer from a new credit card company, a better strategy than getting a new credit card is to ask your current credit card lenders if they have any existing offers.
C) If you have closed some revolving accounts recently, a better strategy than opening up new accounts would be to call the lenders where he or she closed the account and see if they can re-open the same accounts and are able to keep the original open date.
DIVERSIFYING TYPE OF CREDIT ON YOUR REPORT: (possible score increase up to 20 pts)
If your credit report is missing either an installment loan or a credit card, then opening up such an account will add to the diversity of your credit report.
The Final Step: Take action to optimize your credit
Now if all of this is too overwhelming and you need to either build credit or you need to remove negative items on your credit report.
Then you may consider looking into a Credit Repair Consulting Service.
So here’s what I suggest you do next: