|
 Your credit score is a numerical representation of your credit history. Called a FICO score (named for it's creators Fair Isaac Company), lenders use it as a guide when deciding who to lend money to. A high credit score tells a lender that you will be more likely to pay off your debts than a person with a lower credit score. Most lenders use credit scores in determining whether or not to extend credit. For some lenders there is a hard and fast cutoff point where those above the point get credit, and those below it don't. Most lenders however use the scores to quickly approve high scoring applicants, and weed out very low scoring applicants, leaving the middle group of applicants to be processed by hand. This allows lenders to speed up evaluations for everyone.
The exact make up of each scoring model is secret. The credit reporting companies keep it secret to prevent people from manipulating their scores. While the specific criteria and scoring weights are confidential, we do have general knowledge about what will positively or negatively affect your score. Here are a few things to watch out for.
|
|
Not enough credit lines open. The scoring model needs historical data about your credit to create the score, so you need several good accounts that are current, paid and in good standing. |
|
|
Too many credit lines open. If you have too many lines open, you can loose points on the fear that you could suddenly increase your debt to a point beyond your ability to repay. |
|
|
The ratio between your credit limit and your credit balance should be about 50%. That means that if you have a credit card with a $10,000 credit limit, you should keep the balance at no more than $5,000. |
|
|
Too many accounts with late payments. Keep your payments current. Late payments definitely bring down your score. If you are late, never let your payments get beyond 30 days. Sending in your payments after the due date, but before the next billing cycle will keep you from being reported as late. If you do go beyond 30 days, get a payment in before you go to 60 days. Every time you let another 30 days pass, it gets worse and worse, so get caught up and stay caught up. |
|
|
Charged off accounts. If you have a credit account that has been charged off (you didn't pay it, and the lender gave up trying to collect it) this will be a big hit on your credit score. To fix it, contact the original lender and make some arrangement to pay it off. Often times a lender will take a discounted amount to settle the account. Make sure they report the account as paid. |
|
|
Collection accounts bring down your score. Get these paid off as soon as possible. Again, make sure they report the account as paid when you pay them. Collection agencies are notorious for promptly reporting bad information, and then not reporting the debt paid. You have a right to have accurate information on your report. |
|
|
Judgments against you. If a creditor has taken you to court and received a judgment against you, this will be a big drag on your score. Again, get it paid off and make sure it shows as paid. |
|
|
Bankruptcy. This will definitely bring your score down. However, in a perverse way, it may actually help you get credit. Some lenders, especially high interest credit card companies will extend you credit after a bankruptcy knowing that you can't file for bankruptcy again for seven years. Please, if you are in bankruptcy, don't fall into this trap. |
|
