Your credit score determines how much interest you
will pay on your debt. From autos, to home mortgages, to credit
cards, risk managers who help determine what consumers should pay
look to the credit bureaus for guidance. Even rental agencies and
individual landlords have been using them to qualify their tenants.
Trans Union developed the Fair Isaac scoring model that has been
employed, though modified, by all major credit bureaus. Understanding
how these models calculate a credit score could save you hundreds
to thousands of dollars in interest each year. However, Trans Union
does not want you to know this information so “consumers can’t
cheat the system” to quote a Trans Union employee. That’s
right they don’t want you to understand the rules so you can
have better credit. Fair or not, this is the reality that we live
in. In light of their “cooperation”, we’ve compiled
a list of what we’ve found to be the most influential factors
that determine a credit score drawing from our 20+ combined years
of experience in the mortgage industry.
The scoring system puts you at 900 and starts
subtracting with a floor of 300. So what’s a good score? Well
that depends on what you’re looking for but in most cases
a 720 or better will give you the most flexibility in financing
programs with the lowest rates.
Delinquencies: Most people know that bankruptcies, foreclosures and repossessions
drop your score but, another determining factor is having recent
late payments (30 days or more) and becomes worse if the late payments
are on large balances. Collection, charge off accounts and judgments
will severely drag your score down too. Remember your credit history
stays with you for 7-10 years regardless if the debt has been satisfied.
But the older the blemish is, the less it impacts your score.
Available Credit:
Were you aware that carrying balances on your credit cards that
are close to the limit negatively impacts your score? This is part
of the overall available credit factor. The more available credit
you have the less credit risk and therefore the higher the score.
Established credit:
So do not close out your credit line once its paid off. Leave it
open to keep your score high and to show a longer credit history.
The older your accounts are the better. If you don’t have
credit now, get it and start paying on time.
Inquiries:
There seems to be common knowledge that the more inquiries you have
the more your score goes down. This is right, sometimes. If you
apply for a car loan, for example, and decide to shop the rate around
to different banks within a short period of time this should not
affect your score according to Trans Union. I have seen it drive
the score down and I have seen it remain unaffected. Its best to
only have your credit checked when absolutely necessary.
Understanding the rules of the game can help
you win the game. The best thing you can do is start by obtaining
your free copy of your credit report to verify its accuracy. Then
see what factors are negatively affecting your score and take the
necessary measures as outlined above. The creditors and credit bureaus
won’t do this on their own, you need to make the moves and
put your credit into the best shape possible.
FAQ'S
How can I improve my score?
Basic rules to follow: contact the credit bureau and get a free
copy of your credit report to make sure the creditors are reporting
accurately, pay everything on time, pay extra to reduce your balances
especially on your credit cards, limit the number of credit checks
to only when absolutely necessary.
How long before a creditor will update my account?
The creditor will send updated information to the credit bureau
within 30 days. Creditors usually report one time a month and at
the same time every month. Example: If Home Depot last reported
on the 6th of January, then it will resend information on the 6th
of February.
Why when I contacted the credit bureau to dispute and account its
still showing up?
The credit bureau must report the information the creditors give
them. If you send the bureau proof an account is paid off they will
update your account, temporarily. If the creditor still thinks you
owe the money then they will report that to the bureau and in turn
the bureau will report that you still have a balance. You need to
resolve ALL disputes with the creditor directly to keep them from
re-reporting incorrect information. KEEP PROOF WHEN YOU PAYOFF
ANY COLLECTIONS AND CHARGEOFFS.
Where can I get credit if I don’t have any or my credit is
too poor to qualify for anything?
A secured credit card is a good place to establish/ reestablish
your credit. You’ll have to deposit your own money but it’s
a viable option to build good credit.
Why is a collection bill that I paid off still showing on my report?
Your credit history stays with you at least 7 years with a maximum
of 10 years.
Who do I call for a free copy of my credit report? Contact
the credit bureau, you are entitled to 1 free copy each year:
