Credit tips, how to increase your Fico scores

Some of the basic items to keep your Fico score(s) higher and also how to boost your Fico scores are a few basic items.

Pay your bills on time

Everyone knows you need to pay your bills on time.  A few months ago as I helped a family refinance, the husband said he thought his Fico scores were around 780 to 800.  Thinking is one thing, but when we pull them it’s another.  His scores were in the low 700′s.  Why? Not by his doing, but by his wife thinking that it was ok to pay a bill late and she didn’t think it would matter, they both had lates on their credit reports.  Oh wow, what’s the big deal?  Well, by being laxed, their Fico scores were still good, but they were now in a different tiered category that the impact on their credit was about a $1,200 in credits that they lost (what they could have been eligible for).  In addition to that, they also lost a quarter (.25%) of an interest rate per month in savings.

Wow, what a cost to be laxed in having a late payment on your credit report.

Now what is a late?  If you don’t pay your payment on the day that it is due, are you late to the credit bureaus? No, you are only late on your payment to the company.  Most companies allow a grace period of 5 to 10 days without attaching additional fee’s for being late.  Once you pass the 5 to 10 day grace period you are then late. The time you are reported late to the credit bureau’s is 30 days after the original due date.  Many people test this and get dinged with their credit because they try to cut it close.  Is this wise?  No, not at all.

Here’s a little un-known secret. When a company reports to the credit bureaus, they can even report additional information that will either increase your scores or go against you.  If you pay your bills on time or early, that is reported and this will help your scores.  If you are consistently paying your bills after they are due, this can hurt as well.

Balance of Accounts

The proportion ratio (percentage) of the accont that is in use from the issued amount consists of approximately 30% of the scoring module of an indiviudals Fico Score.

To break this down even more,  the weight this carries is very important.  If a person has a single account maxed out ($1,000 credit line and has between 900 to $1,000 used), this is pulling the Fico Score(s) down quite significantly.  It can pull a score down anywhere from 30 to 70 points.  If the account is paid off, there will be a significant increase in your Fico Score(s) from this one account.  There is a laddered / tiered system that the credit berues use.  It goes something like this, zero balance, 10% of less, 15% or less, 30% of less, 50% of less, 60% of less, 75% of less, 100% outstanding and greater than 100% of the amount issued is a negative on your account.

So if your account is maxed out and you can at least pay it down to below 50% of the issued amount and even to below 30%, you will see a big jump in your Fico scores.

Of course, you want to pay your accounts down to zero if at all possible, as this is going to have the greast positive impact on your credit scores.

Another possible way to increase your scores is if your institution will increase your line of credit (a line increase).  The next reporting cycle will show the new increase and also update your Fico scores according the the proportion of outstanding debt on not only that account, but your overall outstanding debt based on the avaialable amount(s).

Closing Accounts

One of the biggest falacies is people think they should close an account and this will help their credit once they pay an account off.

NOOOOOO.  Don’t do this.  9 out of 10 times, this is a terrible, bad, bad thing to do.

Why?  Another method, algorythem that the credit bereaus use is the age of account(s).

New accounts that are less than 24 months since issed (opened date) don’t have as good of a history / bearing on your Fico score in comparison to an account that is over 24 months in age.

To get a score over 800, you need to have at least one account that is over 10 years in age.

The age of accounts is very important.  If you have an account with good history, even if the accont is paid off, you need to have the account opened in order to have the best / highest score(s) as possible.

Once you close that account, you cannot go backwards and reopen the same account and have it stay open.  Once closed, it’s closed and your score will usually decrease.

Case in point, a family I was helping 18 months ago had closed a good line of credit / credit card account on the husbands account.  The Fico score on the husband dropped 15 points and prevented the family from getting the better pricing that they needed.  If the line of credit that was paid off would have been kept open and still paid off with a zero balance, the Fico score would have been where it needed to be.

For conventional mortgage loans, underwriting guidelines require at least one account that is a minimum of 24 months old.  This is not needed for an FHA loan in all cases.

Don’t Apply for an Don’t get New Credit

While you are in the process for getting a mortgage or if you are planning on getting a mortgage (whether purchasing a house or refinancing), do not obtain new credit if at all possible.  There are many times that this will prevent a family from getting a loan if it throws off the ratios.  There are times that it is okay.  You need to consult with an experienced loan officer on this that will know how to help you.

Anytime that you have applied for ANY credit, no matter what it is, whether when getting cable tv, a home phone line, switching cell phone carriers, a new car loan, in store credit and many other items, your credit report is going to be pulled.  You will be asked to write a letter of explanation that has the reason (purpose) for applying for each item with the date.  The dates will be provided when your credit is pulled by the mortgage company helping you get a loan. You will have to explain if any new debt was incurred for each time that you applied for credit.

Incorrect items reporting on your credit report

Statistics are that one in three individuals has at least one item on their credit report that does not belong to them and should not be on their credit report.

These items need to be removed and corrected.  It is very important to check your credit by yourself each year and to stay up on this.  If you need help in correcting errors, we can give you the guidance on how to do this.

Your credit is your to your financial well being, just as taking care of your body is vital to being in tip top physical shape.  If you do not keep up on your credit and finances, it not only can but will take a toll on your level of stress and overall physical health.  The stress that you have will build up and will take its toll on not only yourself, but also on your spouse.  Your children can see this at times.

If you would like assistance in having your credit reviewed and how to improve it, you can contact us for a review and a consultation.

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